Bank of England raises rates to 4% – what does this mean for savers?

Savers should take this as a nudge to shop around, not sit back. Better returns may follow, but banks won’t necessarily pass on the full rise. For larger cash balances, use your ISA allowance and match access to when you’ll need the money. Do question if investing for the long term portion of your funds would be more appropriate. I expect savings deals to improve over coming weeks, with further rate rises possible if inflation stays stubborn and Trumps keeps doing what he does!

Financial institutions usually pass on high borrowing costs more quickly than higher savings returns after base rate decisions. This is good news for savers, but they are unlikely to see the full benefit of the increase. Savers might be better off as a result of the hike, but they need to remember inflation, which could hit 5% next year, is the silent killer and is still eroding their real returns especially for higher rate tax payers.

The Bank has handed savers a quarter of a point, but the Chancellor takes more back in April, when tax on savings interest rises to 24% for basic-rate taxpayers and 44% for higher-rate taxpayers. That lands just as the Bank expects inflation to hit 5%. To beat that, a higher-rate taxpayer would need nearly 9% interest on savings above their tax-free allowance. No account pays that.

So if you have a big cash pile, use your £20,000 cash ISA allowance, which survived the Budget, and use your partner’s too.

With another rise possible on 17 December, I wouldn’t rush into a long fix this week. Shorter terms keep your options open.