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Waiting for rates to rise is a ‘risky strategy’, savers told

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20/10/2021
Savers who are waiting for an interest rate rise before fixing their cash are playing a “risky” game and could end up “worse off”.

Financial markets have been predicting a couple of rate rises over the next few months to combat inflationary pressures, with the first rumoured to be as soon as November.

However, the outlook is now uncertain thanks to inflation dipping slightly in September.

The headline CPI rate fell slightly to 3.1 per cent last month, from 3.2 per cent in August, largely due to last August’s Eat Out to Help Out blip dropping out of figures.

But analysts predict the drop could be temporary and that inflation will come in higher for October, when the energy price cap hike and higher fuel and food costs filter into the figures.

All the uncertainty around interest rate rises means savers are having to make difficult decisions about whether to fix their rate now or wait to see if deals improve.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: “With rate rises expected before Christmas, it’s tempting to become a wait-and-see saver, but it’s a risky strategy.

“It’s easy to see why savers would be tempted to wait for a rate rise before switching. But we can’t guarantee the timing of any rise and even if they come when they’re expected, savings rates won’t rise uniformly or overnight, so you won’t know the best possible time to fix until it’s too late.

“So many savers have waited so long for a period of rate rises that they might have forgotten how sluggish the banks can be in passing them on.

“Some will wait months to raise rates, and others won’t make a change at all.

“It means it will be impossible to tell when rates have peaked until after they do. You have to ask yourself, if you’re waiting for the peak, how will you know when it has arrived?”

In the meantime, inflation continues to wreak havoc on savers’ cash.

There are no standard savings accounts on the market which can beat its eroding power.

The highest rate right now is 2.05 per cent from Gatehouse Bank if you fix for five years.

The most competitive easy access account is offering 0.66 per cent, which is way ahead of the typical high street rate of 0.01 per cent, but still a “drop in the ocean” compared to inflation at 3.1 per cent.

Coles said: “If you’re keen to wait-and-see, one option is to get the best possible rate on your easy access money today. That way, if rates don’t rise as far or as fast as expected, you are at least getting as much as possible on your money while you wait.”

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