Earlier this week, the bank confirmed that it was increasing the deposit interest rate on its 1I2I3, Select and Private current accounts. It comes amid the UK’s current cost of living crisis, which is partly caused by soaring inflation. Because of this, savers are seeing lower returns on their savings, which worries banks like Santander.
To mitigate the impact of inflation, the Bank of England’s Monetary Policy Committee (MPC) took the decision to raise the national base rate to 3%.
Following this, banks and building societies passed on this rate hike to their customers, Santander being one of them.
This is the fifth time in 2022 that this range of savings accounts has seen its rates increase.
Santander’s most recent decision saw rates drop from 1.50% AER/1.49% gross (floating) to 1.75% AER/1.74% AER/gross (floating) on sales up to £20,000.
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According to the bank, the interest rate was automatically applied to accounts from November 8, 2022.
As a result of the move, Santander customers can now earn up to £347.22 in interest a year.
Additionally, any cashback saver earned on certain household bills will be paid by direct debit.
Additionally, those who do business with Santander can still access preferential rates on the bank’s other products.
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Despite this recent rise in interest rates, inflation in the UK has returned to a 40-year high.
The consumer price index (CPI) inflation rate for September 2022 rose to 10.1% after falling slightly the previous month.
Even with its decision to raise interest rates, Santander’s savings accounts are unable to directly compete with inflation at this time.
Financial analysts believe the country’s inflation rate will remain high next year as the UK grapples with the economic fallout from the pandemic and Brexit.
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Experts are sounding the alarm that an “imminent recession” will put additional pressure on savers in the coming months, in addition to inflation.
Sarah Coles, Senior Personal Finance Analyst, Hargreaves Lansdown, shared her thoughts on the interest rate situation.
Ms Coles explained: ‘The high street banks have risen slightly over the past month, so some in-branch easy access accounts are offering 0.5% – but that’s still a tiny fraction of the rises we’ve seen of the Bank of England since December.
“They have so much cash that they are in no rush to attract more with better rates.
“That is unlikely to change anytime soon as the savings rate is expected to rise from here as savers see the impending recession and try to build up the savings reserve they can afford.”
She added: “The big high street banks will attract more money without trying. That means it’s up to smaller, newer, online banks to raise rates.
“They don’t want a large amount of new liquidity, and they don’t want to pay more than necessary for it, so they’re likely to keep pushing rates up a fraction at a time.
“If you were waiting for a better rate to fix it, you’re not going to get it overnight, so you need to be clear about how long you’re willing to wait and what rate you’re willing to fix it at. , or you risk waiting so long that you miss the best price.