Reduced savings rates dip below 5% by providers - Is it necessary to take corrective action?

The Bank of England's decision to cut its base rate in August has set off a domino effect, with numerous banks reducing their savings rates in response.

Since the August base rate cut, a total of 14 one-year fixed savings accounts and six easy-access savings have dropped their rates. The Shawbrook Bank 1 Year Fixed Rate Bond, for instance, saw its rate drop from 5.1% to 4.91% AER within a week. Similarly, the Close Brothers 1 Year Fixed Saver rate decreased from 5.15% to 5% AER during the same period.

As a result, only four one-year fixed savings products remain with rates of 5% or above. The top deal in fixed-rate savings currently stands at 5.15%.

In easy-access accounts, rates may reach up to 5.2%, though they may be variable. However, it's worth noting that the average closed easy-access account rate has been lower than the live equivalent over the past two years, according to Moneyfacts.

The trend of declining deposit rates due to lower central bank rates in Europe is not limited to the UK. Banks in the Eurozone have started lowering savings rates following ECB rate reductions starting June 2024, leading to less attractive returns on savings and fixed deposits in 2025.

One notable instance is Beehive Money, which pulled its 4.7% two-year fixed-rate cash ISA on 1 August. Oxbury Bank's 5.04% easy-access saver was also removed from the market on 5 August.

Chase has slashed its easy-access savings rate from 4.1% to 3.85% AER on 8 August, while Chip's best-buy cash ISA rate fell from 5.21% to 4.84% AER on 1 August.

Despite these changes, there are still a few bank accounts offering good rates for cash savings. However, with the top savings accounts soon having rates below 5%, it's crucial for savers to consider moving their money before it's too late. By doing so, they could potentially be better off by thousands.

Banks must also consider if they offer fair value in closed accounts, as per the new Consumer Duty rules that came into effect on 31 July. The next Bank of England MPC meeting is on 19 September, and further rate cuts may be announced.

It's essential for cash savers to stay informed and act promptly to ensure they are getting the best possible returns on their savings.

Reduced savings rates dip below 5% by providers - Is it necessary to take corrective action?