The Truth About Savings Interest Rates and How They Affect You

The Truth About Savings Interest Rates and How They Affect You

If you are planning to save money, or if you are already building up your rainy day fund, you need to think about savings interest rates. Savings interest rates are an important part of personal finance, but a lot of people overlook them. These rates determine how much your money grows in a savings account over time, which can have a significant impact on your financial goals. With changing economic conditions and a whole host of savings accounts to choose from, understanding the ins and outs of savings interest rates is key. 

Online Banking and It’s Organic Growth

You don’t have to be an online banking expert to know that online banking has experienced a lot of organic growth in recent years. This is because online banking has made it easier than ever for consumers to access banking services from wherever they are, including the comfort of their homes, at work or on the go. This convenience has led to a lot of customers taking all of their banking online, saying goodbye to in person branches.

With online banking, customers can perform a wide range of tasks - such as managing transactions, from checking account balances, transferring bills and applying for loans - from anywhere. All it takes is a few clicks on their smartphone or tablet, and the need to visit a physical bank is obsolete. The flexibility and accessibility of online banking platforms have contributed to their rapid growth and popularity, something that’s sure to continue going forward.

What Has This Growth Meant to Savings Interest Rates?

One of the biggest benefits of online banking growth is that banks are able to pass better details onto consumers, and this includes better interest rates. Traditional, in person bank branches often have a lot of overhead costs, more so than online banks. This is due to the cost of maintaining physical branches, which require a lot of staff, rent, utilities, marketing and advertising, signs and a whole host of facilities. This can limit the interest rates that these banks offer on savings accounts, as the money needs to be spent on running the branch. However, these overhead costs aren’t something that online banks have to worry about, and the money saved can be passed onto customers in the form of higher interest rates.

How Does This Link to the Bank of England Rates?

With more and more online banks having to compete for the best interest rates, the Bank of England has started to take notice. As online banks appeal to customers with impressive returns on their savings, traditional banks are having to respond. This has led to an overall increase in the interest rates available in the market, including the Bank of England, with banks competing to have the best deal out there. When the Bank of England adjusts its base rates, it has an impact on all banks, both online and traditional branches. This directly influences the savings interest rates that customers can access. 

The Benefits of Getting a Good Savings Interest Rate

Different banks pay interest in different ways; some do it monthly, whereas others - such as the Revolut Savings Account - pay it daily. With the Revolut Savings Account, customers can get an interest rate of up to 4.75% and this is in line with a lot of online banks. There are some savings accounts that pay more - for example, Ulster Bank has a rate of 5.2% - but the interest can only be accessed annually. This is why it’s so important to choose the right bank account and the right savings interest rate for you. By getting a good savings interest rate, you can give your finances a boost. 

Boosted Savings Growth - With a higher interest rate, your money goes faster. Even a small increase in your savings interest rate can have a big impact on your finances over time, and this is due to compound interest. This can help you reach your financial goals more quickly.

Combat Inflation - It’s hard to keep the purchasing power of your money over time, but a good savings interest rate can help. It does this by providing returns that can keep up with inflation, ensuring that you don’t miss out. This makes sure that your savings maintain their value, even as inflation increases.

Risk Free Returns - A good savings interest rate offers a safe and risk free way to grow your financial pot. There’s always a risk with stocks and shares, but your returns are guaranteed if you put your money in a savings account.

Financial Motivation - Saving money requires a lot of motivation, but knowing that your money is accumulating interest could be enough to keep you disciplined. It encourages you to set aside more money to take advantage of the higher returns. 

Flexible Access to Money - When you put your money into a savings account, you have the benefit of being able to access it if you suddenly need to. A lot of savings accounts with good interest provide easy access, allowing you to enjoy higher returns while still having funds available for emergencies or unexpected expenses.

Fixed Savings vs Regular Savings vs Instant Access

When it comes to choosing the right savings account for you, you need to understand the differences between fixed savings, regular savings and instant access accounts.

Fixed Savings Accounts

Fixed savings accounts are hugely popular, and they often provide high interest rates. But, to benefit from the high interest rate, you need to put your money into the account for a set period of time. This could range from a few months to many years, depending on the specific bank.

However, it’s likely that you will be penalised for withdrawing any of your money before the agreed date. Often, the penalty comes in the form of a reduced interest rate going forward.



Fixed savings accounts are most commonly used by those with a lump sum of money, who can afford to leave it untouched for the specified term. 

Regular Savings Accounts

Regular savings accounts are designed for those who can consistently save a set amount of money each month. For example, if you put a set amount of money into savings every payday. These accounts often offer competitive interest rates to encourage disciplined saving habits, but there are usually conditions to meet. You might need to keep up with monthly deposits and limit your withdrawals, otherwise you could risk your high interest rate. Regular savings accounts are suitable for people who are looking to build their savings gradually over time, and who are committed to making regular contributions to their savings pot.

Instant Access Savings

Instant access savings accounts - which are sometimes known as easy access accounts - provide a lot of flexibility, enabling you to deposit and withdraw money at any time without having to worry about being penalised. These accounts typically offer lower interest rates compared to fixed and regular savings accounts, but they tend to be more convenient and flexible. Instant access savings accounts are a good option for customers who want to save money, but they need the safety net of being able to access their funds if an emergency happens.

At IQ Money, we know that savings interest rates can be confusing, but there’s a lot of help and guidance out there. With our insights and knowledge, you’ll be an interest rate pro in no time.