Savers earn an extra £140 a year if interest rates hit post-pandemic high

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Savings Champion’s Anna Bowes, an analyst, said: “It’s difficult to know when to freeze your money when interest rates are rising. Savers could lock up some money for the shorter term while leaving others to take advantage of any better interest rates.”

Easy access rates also rose to 0.37 percent from an average of 0.33 percent last month. Average interest rates for two-year bonds rose from 1.28 percent to 1.43 percent, for five-year bonds they rose from 1.75 percent to 1.89 percent.

Despite interest rate improvements, all cash savers will see a real loss of wealth this year due to skyrocketing prices. Prices rose 7 per cent in the 12 months to March as UK inflation hit a 30-year high.

As a result, £10,000 saved in the average easy access account loses £620 of its purchasing power over a year. The same amount would lose £542 on a one-year bond, £521 on a two-year bond and £478 on a five-year bond over 12 months. These losses far exceed the interest earned.

Savers using cash Isa will also see their wealth shrunk away. The average Isa rate for easy access cash rose to 0.38 percent in April from 0.3 percent. This was the biggest monthly increase since 2012, according to Moneyfacts, but £10,000 deposited into one of these accounts would fall by £619 in real terms over 12 months due to inflation.

Rachel Springall, of Moneyfacts, said: “Providers could well continue to improve rates in the coming months and we are already seeing competition from challenger banks returning to the sector.”

Ms Springall said it was “crucial” that savers kept a close eye on the market and regularly switched to peak interest rates to dampen the eroding effects of inflation.

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