Why savings interest rates change

Understanding why the interest rates on your savings change could help you to make better financial decisions and maximise the amount you earn from your savings.

Interest rates are the amount that a bank or financial institution pays you for keeping your money with them. It's like a small thank you gesture which grows your savings. 

There are two types of interest rate:

• Fixed interest rates won’t change for a set amount of time.
• Variable interest rates can go up or down over time, which affects how much you earn.

The base rate is the main interest rate set by the Bank of England. It affects the rates for savings, mortgages and loans from high street banks and building societies. For example, when the base rate increases, mortgage rates usually increase with it. 

Savings interest rates can change for a couple of reasons:

• Changes in the Bank of England’s base rate. Banks usually change their interest rates on savings accounts to match changes to the base rate.
• If banks need more money in their reserves, they might offer higher interest rates to attract more people to save with them.

Different types of savings accounts can be affected differently by changes in interest rates.

Before you open a savings account you should be aware that the interest rate you get can change. Always check the terms of the account before you open it.

Fixed-rate savings accounts

When you open a fixed-rate savings account, your interest rate is locked for a set period. Even if other rates go up or down, the rate on your fixed-rate account won’t change until the end of this fixed period. 

This can be a benefit when rates are decreasing, but a disadvantage if rates go up, as you could lose out on higher interest rates. Withdrawing funds from a fixed-rate savings account before the end of the fixed period can also incur penalties, like losing some of the interest or a fee. Your money may even be locked in the account until the fixed term ends.

Instant access and easy access savings accounts

Instant access accounts gives you a fast instant access to your savings. You can withdraw or deposit your money as often as you like. Other than the normal bank transfer times, you won't have to wait for it. As they have no restrictions, the interest rates offered can be lower. Easy access work in a similar way but normally it takes a few working days to get your money. 

For both of these types of accounts you can usually add or withdraw funds without restrictions. Some banks and accounts may have their own restrictions; for example, they could limit the number of free withdrawals you can make each year remove any interest you would have gained from the month of the withdrawal. It's important to review the terms and conditions of your specific account to understand any restrictions. These points may apply depending on the account you hold.

The interest rates on these accounts can change over time. This will usually be in line with the Bank of England base rate, but banks will also change their rates to match market conditions.

Notice savings accounts

Notice accounts require you to let them know a set amount of time before withdrawing any money, such as 30, 60, or 90 days. The interest rates on these accounts is often higher than easy access accounts to make up for this, but may still change with the Bank of England base rate or to match market conditions.

It’s easy to open a fixed-rate, easy access, or notice savings account with Aviva. You can compare our top-rate savings accounts, and make an informed decision with Aviva Save.