As interest rates soar to new highs of 4%, Lucinda O’Brien, savings expert at money.co.uk, has given her advice on what this means for your personal finances:

The Bank of England’s Monetary Policy Committee meets multiple times throughout the year to decide the country’s ‘base rate’ of interest.

The first meeting of 2023 has taken place today on 2nd February, after the previous meeting led to the rate being increased from 3 to 3.5 percent.

The base rate has increased to 4% and could go even higher following subsequent meetings throughout the year. So what does it mean for our finances?

The interest rate has been increased to counter rising inflation, but this remains high, at 10.5%, meaning interest rates are likely to increase again.

What does this mean for my savings?
In theory, rising interest rates are good for savers, as they should mean that your savings increase at a greater rate.

If your savings account tracks the Bank of England rate, then you’ll benefit in full from any increases.

However, for other accounts, it’s up to banks and building societies how much of the increases they pass on to savers.

Despite this, the increases mean that on the whole, it’s still a good time to save, with better deals available.

How to get the best interest rates on savings accounts
As always, you should try and shop around to get the best deals possible on savings accounts to see where you can get the best rate.

Switching is usually an easy process that can be completed within minutes online, so it’s worth looking into.

You should also be on the lookout for bonus rates that are offered to attract new savers.

These can be a good way to boost your savings but make sure to note when the bonus period ends so that you don’t get caught out.

You also need to think about how long you’re happy to lock your savings away for and how easily you need to access them.

For example, a fixed-rate account may have a good rate, but with things changing so rapidly at the moment, you may want to change in a few months.

On the other hand, an easy access rate might have lower rates, but allow you to withdraw easily.

That kind of flexibility could be very useful in the current climate, where switching accounts frequently could be beneficial.

Lucinda O’Brien, personal finance expert at money.co.uk comments:

“The Bank of England base rate stands today at 4%. In January 2022, the base rate was only 0.25% and the Bank of England forecast is that rates could rise to 5.2% by the end of 2023. Despite increasing interest rates creating challenges for those who owe money, savers can benefit massively from this increase.

“However, many high street easy-access savings accounts may not pass on the interest rate rise, meaning you’d be unlikely to see any large increase in interest overnight. To feel the maximum benefit of the hike, you should move your money to a higher-interest fixed-rate savings account and keep it there.

“Any savers who don’t move their money to the highest interest rate savings account will be missing out. It’s important to note, the highest rates will only be found in fixed-rate savings accounts, which is not ideal for those who may need to dip into their savings over the next few months due to the current cost of living.

“Therefore, it would be wise to diversify your funds to get the best of both worlds; keeping an emergency fund in an easy-access account to ensure simple last-minute withdrawals if needed, while moving the rest to the top-rated fixed-rate savings account to best benefit from high interest on your savings. To find the savings accounts with the best rates for you, I recommend comparing savings accounts before switching.”