MARTIN Lewis is urging savers to switch bank accounts after the Bank of England hiked interest rates.
The founder of MoneySavingExpert.com warned that banks will be less likely to pass the new interest rates on to savers.
However, mortgage holders are likely to be hit hard by the new rates.
Interest rates will rise from 1.75% to 2.25% and the move will make the cost of borrowing more expensive.
Economists had expected a hike of 0.75% as the BoE tries to tackle high inflation.
The Bank of England now expects inflation to peak at 11 per cent this October
However, the Bank of England said that the government’s relief on energy bills meant costs would be less of a driver of inflation than before.
And while the rise is bad news for mortgage holder, it’s good news for savers.
Martin Lewis took the news to Twitter and explained how the rise in interest rates will affect savers.
His post read: “Bank of England‘s just increased UK base rates by 0.5% points from 1.75% to 2.25%. Highest since 2008.
“SAVINGS many won’t pass rise on, be prepared to switch.
“With savings, the key is the top rate and top fixes will go up. So wait a day or two for new rate to be factored in, then check your savings, and if it is crap ditch and switch.”
A rate rise is generally good news for savers especially after a long stretch of getting very low rates on their money.
Anyone currently getting a low rate on their savings account will find that it is now worth moving their money.
However, along with low rates, high inflation can erode away the value of any savings you have.
So if you have £ 100 in the bank this year and inflation is 10%, the real spending power of that money is reduced to £ 90 next year.
But rate rises do see banks pass on higher rates to savers – though they are usually much slower to act than with passing on higher rates for borrowing.
However, there are decent rates available and it’s vital that savers check any existing account they have, because not every savings account has improved, as some deals can pay as little as 0.01%.
For example, right now savers could bag 4% in interest with a two year fixed rate savings account, according to MoneyFacts.
And those looking for an easy access account, which allows unlimited cash withdrawals could get 2.1% back in interest on their savings.
Rates are likely to creep over the next few days so it’s worth keeping a close eye on them.
Martin Lewis also explained how the rise in interest rates affects mortgage holders.
Ditch the ISA for a better saver
With today’s personal savings allowance a saver would only be taxed on their savings if they had £ 65,000 or more in the bank – so it’s unwise to open a cash ISA right now.
You could bag up to £ 32,000 for free from the government if you max out this savings account over the long-term.
A Lisa is savings account for anyone aged 18-49 – you can put in up to £ 4,000 a year until you’re 50, and the government adds an additional 25% bonus on top.
But you can only use the money you save to either buy your first home or at retirement, or you’ll forfeit the bonus.
How can I bag the best savings rates?
Use comparison sites. Rachel Springall, finance expert at Moneyfacts.co.uk previously told The Sun: “Comparison sites are a quick way to compare the top rates.
“Savers can even search by how much they are looking to put aside and how long they are prepared to lock it away.”
With your current rates in mind, don’t waste time looking at individual banking sites to compare rates – it’ll take you eternity.
These sites let you tailor your searches to an account type that suits you.