Santander to raise interest rates on savings accounts – how does this compare to inflation? | Personal finance | Finance

Currently, inflation in the UK is at 9.4% and is expected to reach 13% in the coming months. With the Bank of England warning that high inflation will likely be a reality for next year, the central bank took the decision to raise the country’s base rate by 0.50% to 1.75%. In light of this, banks such as Santander are passing this rate hike on to their customers to help them through the cost of living crisis.

Notably, the bank’s 1I2I3, Select and Private current accounts will benefit from an increase in the deposit interest rate of 0.75% AER/gross (floating).

This rate increase will apply to balances up to £20,000 and 1% AER/gross (variable) on balances up to £20,000, with customers earning up to £200 a year in interest.

On top of that, Santander customers will be able to get cash back on household bills for a monthly fee of £4.

The bank’s Junior ISA will also drop from 1% to 1.25% from September 2.

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On top of that, the Flexible Saver for Kids account will drop from 0.35% to 0.60% on the same day.

Prospective homeowners using Santander’s First Home Saver account will see interest rates drop from 0.75% to 1%.

In addition, the bank’s ISA purchase assistance will also see a rate hike from 0.75% to 1.25%.

The financial institution’s base rate-linked products will also benefit from a rate hike following the Bank of England’s decision last week.

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For example, Santander’s tracker mortgage products that are linked to the base rate will increase by 0.50% from September 3.

Other products that will see an increase include the Santander Follow-on Rate (FoR) which will increase to 5%.

Additionally, Alliance and Leicester mortgage products will rise by 0.50% from the start of next month.

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Each of Santander’s savings accounts linked to the Bank of England base rate will increase by 0.50% next month.

This also includes Rate for Life and Good for Life savings accounts.

Despite this wave of interest rate hikes, Santander and the other major banks are still unable to offer a favorable rate that can directly compete with inflation at 9.4%.

Derek Sprawling, director of savings at Paragon Bank, explained what the Bank of England’s latest decision means for savers.

Mr Sprawling explained: “While welcome, the new effective rate is still well below what savers could earn on their hard-earned deposits and signals one way savers could potentially support themselves in times to come.

“Those planning for their summer of 2023 today could earn more than one percent more than they can through high street vendors by researching the best deals available for their circumstances, and I implore them to invest some time during their summer vacation to do just that.

“While the success, or failure, of a new Prime Minister in addressing the challenges facing savers remains to be seen, a prudent course of action remains to take advantage of what is available now so that they can again put money aside to enjoy on their next summer vacation.

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