Got savings? Why Bank of England's interest rate cut may not be a disaster - yet

While a drop in interest from 5.25% to 5% is a blessing for mortgage holders, it also means savings rates will also likely be slashed.

However some experts say the drop "shouldn't do too much damage" yet.

Others have urged savers to shop around for a good deal saying "loyalty is seldom rewarded".

Explaining what the drop in the rate means for savers, Mike Hicks, head of active savings at Hargreaves Lansdown said: "A rate cut is never going to be music to the ears of savers, but this shouldn't do too much damage."

He said the market was "split" on whether a rate cut was coming so the announcement will mean rates are brought down slightly, especially among easy access accounts, but "we're not expecting massive movements", Mr Hicks said.

He added: "If the Bank of England decides to cut rates twice and then pause, we should see minimal disruption to the savings market.

"But more consistent rate cutting of four or more would drive greater savings rate change."

In a press conference, the Bank of England's governor Andrew Bailey said interest rates will fall more gradually than they rose - which saw the base rate soar from 0.1% in late 2021 to 5.25% last summer.

Mr Bailey said: "Inflationary pressures have eased enough that we've been able to cut interest rates today.

"But we need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much."

Many economists believe rates will remain at 5% in September but could come down again in November.

Although he would not be drawn on how low the base rate would go, Mr Bailey hinted it would only go to about 3-4%, saying "we will be somewhere around where the neutral rate will be, which will be lower than we are at now”.

The best deals might be with challenger banks rather than the big high street names, NimbleFins CEO and co-founder Erin Yurday said.

She added: "Our Best Savings Accounts Guide that we update every week often has smaller banks topping the list for the best interest rates in both fixed rate and easy access.

"You can still get some accounts offering 5% or more, but these will likely become harder to find so it's worth doing some research now.

"For example, we know GB Bank has been offering 5.26% fixed for a year via Raisin but this is being taken off the market on August 2, dropping to 4.96%.

"But there is also a 7% regular savings offer with First Direct and they have not given notice that it's being taken off the market yet."

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said: "It's wise to look beyond the more familiar big banks."

Ele Clark of Which? added: "When it comes to savings, loyalty is seldom rewarded."

Mr Hicks said the longer-term savings rates give the "clearest indication" of where the market expects things to settle.

He added: "With three-year and five-year fixed savings rates at 4-4.5%, the market is currently not predicting any significant falls below these levels.

"At the moment, the highest easy access rate and one-year fixed rate accounts still pay over 5%, so savers can still beat inflation by an impressive margin."

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