'With UK interest rates forecast to fall, should I move my savings?' (2024)

“With the International Monetary Fund (IMF) predicting that interest rates will be rock-bottom again once inflation is under control, what should I do with my savings? It has taken years for rates to return to the sort of levels they are at now, and I don’t want my money to be earning almost nothing again.“

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UK interest rates have increased significantly since 2021 as the Bank of England tries to tame surging inflation.

In December 2021, the base rate – the benchmark for most savings and mortgage products – was at a record low of 0.1%. Today, it’s 5.25% and, as a result, savers can earn more than 5% interest on their money.

But this may not last for long. With inflation falling, interest rates could soon follow.

This could provide relief for homeowners and business borrowers who have been hit by dizzying increases in their monthly payments. But it will be sobering for savers who are finally seeing decent returns. So should you be worried about UK interest rates going down?

If you are looking for a top paying savings account check out our round up: Best savings accounts in 2024

When will UK interest rates start to fall again?

First of all, it’s worth noting that the Bank of England is playing it carefully. While inflation is down this year, it’s still far from the Bank’s target.

Bank governor Andrew Bailey said in March: “The [Monetary Policy] Committee has judged since last autumn that monetary policy needs to be restrictive for an extended period of time until the risk of inflation becoming embedded above the 2% target dissipates.”

Another way to look at this all is through the lens of the banks, which tend to price products according to not just the base rate but also “swap rates” – the price they pay on the financial markets for funding for their own operations. And the level at which these rates are set reflects market expectations of what the base rate will be in the future.

Generally, the longer you are willing to commit your money to staying in a savings account, the better the interest rate you will be paid – because a bank or building society has the certainty of holding your cash for that period.

So what can you do with your savings?

Those savers who have their money in an easy-access variable-rate account, and are worried about rates falling, could consider switching to a fixed-rate account while these deals are still paying rates of interest not seen since before the financial crisis 16 years ago.

These accounts lock your money away for a set period at a fixed rate of interest. That offers security. But bear in mind that if you need access to the cash before the account matures then you might have to pay an exit penalty. So it’s only generally worth it if you’re confident you won’t need the money during the fixed term.

A way to mitigate this is by having some money in an easy-access savings account set aside for any emergencies or other big, unplanned expenses.

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Rachel Springall at financial website Moneyfacts explained: “Shorter-term fixed savings accounts can be a preferred choice amongst savers right now, however, typically a longer-term fixed bond is more attractive if there is an expectation for interest rates to plummet.”

Springall argued, though, that waiting for even higher rates could backfire as many of these products are being offered by challenger banks, which may pull their deals once they hit their quota. “Savers,” she adds, “may need to act quickly to grab a top rate.”

See our guide for the best fixed rate savings accounts right now.

How long should I fix for?

How long you fix for depends on where you think the market is heading and when you will need to access your savings.

If you are unlikely to need the money for several years, you could consider locking it away now. This way, even if interest rates fall sharply, you will still be receiving a good return.

You may even beat inflation. For example, if you locked in a three-year fixed savings deal paying 4.95% today, and inflation fell to the Bank’s target rate of 2% in 2024, you would beat inflation in the second and third years.

You may be better off fixing for a shorter term if you disagree with current forecasts and think rates may continue to rise. If you do this then you can take out a new fixed-rate deal when that one expires.

If you’re unsure, you could save half in a longer-term deal, put the rest in a shorter-term one. This would mean taking your chances with what rates will be when that fix comes to an end.

You might want to speak to a financial adviser too. They will be able to take a closer look at your personal finances and work out the best option for you. Kellands* is offering all of our readers a free hour-long session* with one of its independent financial advisers. They can get a good idea of your financial goals, and help you take the first step to achieving them.