- Interest rates were held at 4.5%
- Just one member of the committee voted to cut rates
- Savers seeing rate cuts despite no cut to Base Rate
Laura Suter, director of personal finance at AJ Bell, comments:
“No shocks from the Bank of England today as interest rates were held at 4.5% until at least May. Just one member of the committee preferred to make a rate cut, with the majority sticking to market expectations and serving up a hold. The key words to draw out of the Bank’s accompanying statement were ‘gradual and careful’, with the ratesetters being cautious not to rock the economic boat.
“The next Bank meeting isn’t until early May and there’s a lot of potential economic speedbumps in the way before then, from global issues like Trump’s tariffs and Germany’s historic debt reform, to matters closer to home, like the outcomes of the Spring Statement and the potential inflationary impact of the onslaught of bill increases in April. Markets themselves are currently undecided on whether the next interest rate cut is due to come in May or June, but they are expecting a chop to 4.25% by summer.
“Savers are bearing the brunt of a falling interest rate world, even though the Bank didn’t deliver a rate cut today. Data from Moneyfactscompare found that the average easy-access savings rate has dropped by 0.33 percentage points in the past year. For someone with £15,000 of savings that equates to almost £50 a year in lost interest. However, savers can get much higher rates by shopping around – and the tax year end is the perfect time to pick up a juicy rate from savings providers who want to lure in more customers. In particular, ISA interest rates have seen healthy competition so far this year.
“Despite the drop in savings rates we know that a huge proportion of savers will still be hit with tax on their savings interest this year. HMRC estimates that more than two million people will pay some tax on the interest they earn on their savings. While it’s too late to fix the problem for the current tax year, people should use the final days of the tax year to make sure they are stocking their ISAs to protect their hard-earned money from the taxman going forward.
“An FOI from AJ Bell found that ISAs collectively saved Brits £7.7bn in tax last year, showing just how valuable the accounts are. This boils down to £114 in tax saved last year for each Cash ISA saver and £721 a year for the average Stocks and Shares ISA investor*.
“Cash savers in the top-paying easy-access account with no withdrawal limits could earn 4.6%, which means they only need to have £11,000 in the account before they are hit with tax if they are a higher rate taxpayer, or £22,000 if they are a basic-rate taxpayer.
“A couple who acts before the tax year end could shelter up to £80,000 in ISA accounts in the next few weeks, potentially saving a huge amount in tax. If that was earning 4.6% interest in a non-ISA account, it would save higher-rate taxpayers £1,072 in tax, assuming they had no other taxable savings. Throw in two lots of Junior ISA accounts and a family of four could shelter up to £116,000 from the taxman in less than a month – assuming they have the spare cash to do so.”
* based on the latest Cash ISA holder numbers published by HMRC.
