by Carolina Maia 17th January 2022
What do rising interest rates mean for UK savers?

Our Chamber Corporate member Antonio Rosa from Blacktower Financial Management Group in Portugal presents his insight on the latest speculation created lately about the possibility of central bank interest rate rises.


Financial news sites are full of speculation for the past couple of weeks about the possibility of central bank interest rate rises.

With the US Federal Reserve announcing plans for interest rate increases in 2022 and the Bank
of England (BOE) Monetary Policy Committee voting 8:1 in favour of a 15 base point increase before Christmas, investors might be wondering what’s in store for deposits in the coming months.

What do we know so far?
In the UK, base rates have been between 0.1% and 1% for over 12 years. This unusually lengthy period of very low rates has resulted in a market where money is cheap to borrow and high street bank deposits have paid such minimal interest that savings are reducing in real terms due to rising inflation.

The rate of inflation has risen to a 30-year high in the past couple of months, the BOE is under pressure to further increase rates to keep inflation under control.
Cost of living increases in the UK are putting the average resident under financial strain as global energy costs rocket and items such as everyday shopping, furniture and clothing also fuel the rise in inflation.

What might happen in the UK next week?
Financial analysts expect inflationary pressures to continue through Q2 2022, probably peaking in April or May and believe that the target of 2% will not be achieved until sometime in 2023. As
a result, Reuters predicts that Britain’s central bank will add another 0.25% to bring the interest rate to 0.5% when it meets in early February.

What does that mean for personal finances?
When interest rates rise, the immediate impact is felt by those who are borrowing money.

BOE sets the base rate at which it will loan money to other financial institutions and those banks and building societies need to factor in their margin, which is usually 0.5-2%. This means the cost of borrowing on mortgages and other credit is increased, usually at the same rate as the BOE base rate increase.

The impact for borrowers on standard variable rate products often comes within a few days of the announcement. For an average homeowner in the UK with a £140,000 mortgage, the 0.15% increased their monthly mortgage payment by around £15. With another hike likely in February, this could further increase monthly outgoings by an additional £25.

For savers, the picture is reversed but it is not uncommon for banks and building societies to be slow to pass on interest rate rises to their deposit account holders – this is another way for them to make more money. Since the rate rise in mid-December, only a handful of banks have passed on any of the rise to savers. This is because they have plenty of cheap money from the BOE and are in no hurry to attract new deposit savers.

It seems likely that if the expected 0.25% interest rate rise is announced in February, that savers could see a modest increase in the interest on deposit accounts. The best rates are found on regular savings accounts. These are accounts where you have limited ability to withdraw, and you must commit to making a minimum deposit every month.

The rates are usually fixed for just one year. Currently the best product available pays 5% interest, so with inflation running at 5.4%, even this account isn’t protecting the real terms value of savers money. More flexible savings accounts pay between 0.7-2% but often require notice to withdraw.

Advice from Blacktower Financial Management
With the deposit market in the UK unlikely to change much over the short term in 2022, there are other options for savers which can produce much better returns, making your money work harder for you.

With higher reward comes higher risk though, so it’s always sensible to take financial advice when considering where to put your hard-earned cash. Mutual funds such as Nexus Global Solutions Portfolio A returned 7.5% growth in 2021 against the backdrop of the global pandemic, proving once again that there are better options for investment than bank deposit accounts.

As always, qualified professional advisors are best placed to help you navigate the changing financial landscape and create the best returns on your investments.

Blacktower Financial Management wealth advisors can assess your situation, helping you to identify the best way to structure your wealth to grow and preserve your wealth. We will regularly review your position to ensure that you achieve your financial goals now and in the

Contact one of the representatives at our Lisbon office today for your free no-obligation discussion.

Blacktower in Portugal
Blacktower’s offices in Portugal can help you manage your wealth to your best advantage. For more information contact your local office.

Antonio Rosa is the Associate Director of Blacktower in Lisbon, Portugal.