Bank of England holds base rate at 5.25% - here's what it means for your savings

In a much-anticipated decision, the Bank of England (BoE) has chosen to maintain the base rate at 5.25% for a second consecutive month.

The Monetary Policy Committee (MPC) voted by a majority of 6-3 to maintain the bank rate for another six weeks, with three members advocating for an increase to 5.5%. This decision reflects the MPC's commitment to achieving the 2% inflation target, which currently sits at 6.7%, but is expected to decline in the coming quarters.

Andrew Bailey issued a statement about today’s decision:

"Higher interest rates are working and inflation is falling.

"But we need to see inflation continuing to fall all the way to our 2% target. We've held rates unchanged this month, but we'll be watching closely to see if further rate increases are needed.

"It's much too early to be thinking about rate cuts."

At the previous MPC meeting, the decision to hold the rate marked the end of a remarkable run of 14 consecutive rate hikes, dating back to December 2021. The vote was a close call, with Governor Andrew Bailey and the majority of the committee voting to leave rates unchanged. The BoE also conveyed a clear message during that meeting. It expected rates to remain higher for an extended period.

What does this decision mean for you and your savings?

We explore how the base rate affects your savings, and what you can do to maximise your returns.

1. Competitive savings rates

The BoE's decision to keep the base rate steady at 5.25% is great news for savers. In a high-interest rate environment, banks and financial institutions tend to offer more competitive interest rates on savings accounts. This means that your savings can generate higher returns over time, surpassing what you might earn during periods of lower base rates.

Whether you're saving for a specific goal, building an emergency fund, or preparing for retirement, the decision to maintain a higher base rate can help you achieve your financial objectives more efficiently.

2. Stable returns

With the base rate expected to remain relatively high until 2025, you can count on your savings to generate stable and healthy returns. This stability is invaluable for anyone looking to secure and grow their savings over the coming years.

In a world where financial markets can be unpredictable, having a stable base rate is like finding a reliable anchor. It means you can more accurately project how your savings will grow over time, making long-term financial planning more manageable.

3. Inflation protection

High savings rates not only help your money grow but also enable you to tame inflation. Inflation is the gradual increase in the prices of goods and services over time. It can diminish the purchasing power of your money. This means that the money you have today may buy less in the future.

By earning higher interest on your savings, you can better offset the effects of inflation and ensure that your savings maintain their real value. Protecting your savings from inflation contributes to your long-term financial wellness, helping you maintain your desired lifestyle in the future.

4. Financial security

In uncertain economic times, having some of your assets in savings accounts offers a level of financial security. These accounts provide a safe and liquid option for your money, which can be essential in emergencies or when you need quick access to funds.

The Financial Services Compensation Scheme (FSCS) provides a level of protection for your savings. If you hold an eligible deposit with a UK-authorised bank or building society that fails, the FSCS will compensate you, up to a limit. This limit is currently set at £85,000, providing assurance that your savings are protected.

If your savings exceed the limit, you can still get FSCS protection by spreading your cash between multiple banks. This strategy prevents you from relying too much on one institution, so you can maximise your income without sacrificing security.

What lies ahead?

The BoE’s decision to keep the base rate at 5.25% reflects the delicate balance between controlling inflation and supporting economic growth. While this decision provides some stability, it also suggests that the central bank remains cautious about the economic landscape.

The ongoing global uncertainties, such as geopolitical tensions and supply chain disruptions, have made predicting the future of the economy more challenging. 

Additionally, the impact of previous rate hikes and their effect on households and businesses is still unfolding. The path forward may be uncertain, but informed financial decisions can help you navigate the journey with confidence.

Harnessing the opportunity

Today’s MPC update highlights the opportunity for savers to make the most of high-interest rates. It's a moment to capitalise on your savings and ensure your money is working harder for you.

If you’re looking for a way to easily manage and nurture your cash to maximise the return on your savings, our cash-deposit platform is the solution. With just one log in, you’ll gain access to hundreds of accounts from several banks, including exclusive interest rates to help your finances flourish. 

Find out how you can increase the returns on your savings.

Use our cash deposit calculator