Following the recent decision by the Bank of England to reduce the base rate from 5.25 per cent to 5 per cent, savers are now faced with the impact of this cut on their savings account rates. Savings rates had already been on a downward trend prior to the cut, and the future direction will depend on any further cuts to the base rate in the coming months. Additionally, National Savings & Investments (NS&I) has surpassed its fundraising target, raising concerns about potential cuts to the Premium Bonds prize rate.

Savings account rates are still relatively attractive, with the best one-year fixed rate account offering 5.25 per cent and the best easy-access account offering 5.20 per cent. However, there has been an average 0.25 percentage point decrease in savings rates in recent weeks. Variable rates are expected to continue to decline as the market adjusts to the base rate cut, prompting savers to review their accounts and consider switching if necessary.

While rate cuts are anticipated, they are not expected to be drastic at this time. Longer-term savings rates, such as three-year and five-year fixed rates at 4-4.5 per cent, indicate that the market does not foresee a significant drop below these levels. According to Mark Hicks from Hargreaves Lansdown, the frequency of future rate cuts by the Bank of England will determine the extent of changes in savings rates.

In terms of Premium Bonds, NS&I exceeded its financing target for 2023-24, leading to speculation of potential cuts to the prize rate. Despite a previous rate reduction in January, customers did not significantly reduce their bond holdings as expected. This has raised concerns about further cuts to the Premium Bonds prize rate in the near future.

Premium Bonds may not offer the best rates on the market, but they can be advantageous for high-income taxpayers due to their tax-free prize winnings. Rosie Hooper from Quilter Cheviot suggests that higher-rate taxpayers could consider keeping their emergency funds in Premium Bonds to benefit from the tax advantages. However, it is important to maintain some cash savings in an easy-access bank account as well.

In response to the overfunding, NS&I has introduced new two-year and five-year British Savings Bonds, expanding options for savers seeking fixed-rate accounts. These bonds offer rates of 4.6 per cent and 4.1 per cent, respectively. While NS&I bonds may not offer the highest rates available, they provide a secure investment backed by the Treasury. It is worth noting that interest earned on these bonds is taxable.

Overall, savers are advised to stay informed about changes in savings rates and consider their options carefully in light of the current economic climate and potential future rate adjustments.