On Thursday (February 2), the central bank hiked the base rate for the tenth consecutive time to four percent as it attempts to mitigate the impact of inflation. In response, financial institutions such as Tandem Bank are boosting the interest rates of their existing accounts. The products from the bank affected by the rate change this time are its instant access savings accounts.
As of this week, Tandem Bank has raised the interest rates of these accounts to 2.85 percent.
However, with the bank’s Top Up rate applied, this boosts the interest rate to a competitive 3.05 percent.
This hiked rate will come in handy for savers who are seeing returns on their accounts diminished due to inflation.
Ben Mitchell, the director of Savings at Tandem Bank, shared why the financial institution wants to make this change at this moment in time.
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He explained: “With interest rates continuing to rise, it’s right that we raised the rates for our customers.
“I’m delighted we can continue to offer a leading proposition for hardworking savers across the UK.
“And, following the launch of our new Top Up rate, they are further rewarded with a market-leading overall rate of 3.05 percent on their instant access savings.
“I’m proud we’re continuing to lay such markers as we look to support banking for a greener future with customers’ savings supporting green lending and initiatives.”
Last month, Tandem Bank confirmed it raised the Top Up rate of its instant access savings accounts from January 2023.
Thanks to this, the bank will add an increased rate on top of their existing interest rate which will apply for a year.
For example, if one of the savings accounts had an underlying rate of 2.55 percent AER, the Top Up would be 0.20 percent AER.
As a result, savers with the digital bank would see a new total variable interest rate of 2.75 percent.
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Within the last year, the Bank of England has raised the base rate 10 times as inflation currently sits at 10.5 percent.
While most savings accounts cannot compete directly with that rate, the central bank’s recent interventions have been able to assist savers during the cost of living crisis.
Helen Morrissey, senior analyst at Hargreaves Lansdown, outlined what these base rate hikes really mean for savers.
Ms Morrisey said: “An interest rate hike should be good news for savers, but the reality is it’s much more complicated than that. Interest rates on savings accounts in the biggest banks have increased over the past year, but only slightly.
“There’s no obligation to pass on interest rate rises to savers, so this means many have only passed them on in part and at a very slow rate. Even if they decide to pass on today’s rate increase, we may not see any movement in interest rates for several weeks.
“If you are prepared to do a bit of research, there are better deals on offer. You can get up to three percent on easy access accounts and today’s rate hike could see them move up further.
“If you are willing to tie up your money for a period of time, then you can get more again. However, the sense is growing that we may be past the peak with fixed term rates. They are essentially forward looking, and today’s rate increase was largely trailed so is largely already priced in.
“Added to this is the expectation that rates are expected to start coming down later in the term and so we could see the rates on offer start to come down.”