Nine successive base rate increases later: How has the savings market changed?

Last updated: 30 January 2023

On 16 December 2021 the Bank of England (BoE) voted to increase the base rate for the first time in over four years.

This increase would mark the beginning of a string of nine successive rises as the BoE’s Monetary Policy Committee tried to slow rampant inflation.

Today the base rate stands at 3.50%, having risen 3.25 percentage points since 16 December 2021. Yet it could rise further on Thursday, when the BoE's Monetary Policy Committee meet for the first time this year.

In theory, increasing the base rate makes borrowing more expensive, which constrains spending. Mortgages, for example, should increase in price while savings rates look more attractive.

But these fluctuations aren’t always in line with base rate.

Below we have used Moneyfacts data to track how savings rates have performed since 16 December 2021.

At the time of the base rate increase in December 2021 the average easy access rate for that month stood at 0.20% gross.

It would remain stagnant in the following weeks, starting 2022 at this figure too.

This lack of movement is encapsulated in the change of market-leading providers in the month that followed. On 15 December 2021 the top easy access rate was offered by Investec Bank at 0.71% AER and just over one month later Family Building Society had bettered this by a mere 0.01 percentage point.

The best one year fixed bond, however, saw its rate fall.

On 15 December 2021 it stood at 1.41% AER but was promptly lower at 1.36% AER on 19 January 2022.

In May the base rate rose to 1%, the first time it had breached this figure since the beginning of 2009.

By this stage there had been three successive base rate increases, and that average easy access rate had almost doubled to 0.40% gross.

However, since the first increase in December, high street banks were some of the most hesitant to pass on the full effects of the rate rises to their customers.

According to Moneyfacts calculations on May 5, these brands passed on an average of just 0.09% to their savings accounts since December 2021.

Ten days later, further research by Moneyfacts found that fixed rates saw some of the biggest monthly rises in over a decade.

The average longer-term bond, which is classed as having a fixed rate period of more than 18 months, saw its biggest monthly rise since April 2009.

Last August the BoE voted to increase the base rate by a historic 50 basis point margin which, at the time, was its single biggest increase in 27 years.

Just over 10 days later further Moneyfacts research found that the average one-year bond rose to its highest level since 2013. At 1.97% gross, it had grown by 1.17 percentage points since January.

In other words, and according to our calculator which you can use below, a £10,000 deposit would earn £80 in interest through the average one-year bond rate in January. In August, the same investment would earn £197.  

After the US Federal Reserve and the European Central Bank made respective 75 basis point hikes to their rates, the BoE made a similar move at the beginning of November.

“Savers who want the flexibility of an easy access account will find the average rate is now over 1%, the first time this level has been breached in a decade,” Rachel Springall, Finance Expert at Moneyfacts, wrote at the time.

At this point this easy access figure was nearly six times greater than one year prior.

In its most recent decision in December 2022, the BoE increased the base rate to 3.50%.

The decision comes in contrast to the year before, when the base rate was a day away from rising to 0.25%.

As for savings rates, in December 2021 the average five year fixed rate stood at 1.42% gross, something which the current average one year rate betters comfortably.

But, for a fairer comparison, consider how this compares against the same average five year rate at the beginning of this month.

If you made a £10,000 deposit into the average five year fixed account in December 2021 your savings would have made £730.45 in interest.

Alternatively, if you made the same investment into the average five year fixed account this January at 4.02% gross, you would earn £2,178.23 at the end of your five year period.