Martin Lewis warning over 'crap savings' after interest rate rise

Money saving expert Martin Lewis has warned savers to check the interest rates on their accounts to ensure they increase because most will "stay crap to profit from inertia".

On Thursday the Bank of England (BoE) raised interest rates to 1.25% from 1% and is now at the highest point since 2009.

It is the fifth increase in a row as the bank tries to get a grip on rising inflation which is fuelling the cost of living crisis.

The rise will mean people with variable mortgages will be paying around £12 extra a month per 100,000 they owe, according to Lewis.

Watch: UK economist says interest rates will keep rising

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Those on fixed rates will pay the same until their period expires and then they will likely face higher costs.

The increase in the BoE interest rate should reflect an increase in interest rates on personal savings accounts.

But many bank have been accused of not passing this increase on in order to save money.

Lewis said: "Top savings rates should rise in next week, but most'll stay crap to profit from inertia."

This means people who don't dig around for a new higher interest rate savings account may be left with an account that has practically zero interest.

Some savings accounts have crept up to 3% interest in recent months after they were cut to a record low at the start of the pandemic.

On Thursday, the BofE said three of the nine-person Monetary Policy Committee (MPC) voted for an even bigger hike, arguing that rates should rise as high as 1.5%.

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The Bank said it was likely further increases would be coming in order to get a grip on inflation.

The cost of living has been soaring for months, with consumer prices index (CPI) inflation hitting a 40-year high of 9% in April when the energy price cap was hiked.

They warned inflation could hit 11% when energy bills are hiked again in October.

The chancellor has announced multi-billion pound help for struggling households, much of which is set to come in when energy bills rise again in October.

But it might prove somewhat of a double-edged sword, the Bank said, adding another 0.1 percentage points to CPI in the first year.

If you want to get the best out of your savings what should you do?

If you've got some money in a pot that you're planning on keeping as savings for a medium to long time it is worth ensuring you've got the best possible interest rate.

At the start of the pandemic, many banks slashed the interest rates to next to zero Ton their savings accounts as the economy plunged into recession.

Since the economy has opened back up some banks have been sluggish in increasing their rates in order to save some money and hoping their customers don't notice.

If you want to save it is worth using a price comparison website to see what the best rate available for you is.

At the moment the very highest rates are around 3.5% but they have strict rules on mandatory monthly deposits and a set amount of time where you will not be able to withdraw your funds without penalty.

More flexible accounts that have no rules on required monthly deposits or limits on how you access your fund, but they will come with a lower rate, currently around 2%.

Some banks also offer you cash directly for opening an account with them.

It is also worth keeping an eye on any new deals that emerge as banks just to the new higher BoE interest rate.