Earlier this week, the bank confirmed that it was raising the interest rate on its consumer ISA savings accounts. It comes as the country faces an unprecedented crisis in the cost of living, partly caused by soaring inflation. In an attempt to solve this problem, the Bank of England increased the national base rate that Santander passed on to its customers.
The bank’s most recent rate hike sees its fixed-rate ISA products paying up to 3.60%.
This offer comes with a £50 voucher for new and existing customers transferring their ISA balances.
On top of this, Santander has increased the deposit interest rate on its 1I2I3, Select and Private current accounts to monthly interest of 1.50% AER/gross (variable) on balances up to £20,000.
In addition to this intervention, the bank also offers offers that are too attractive for savers, the 123 Regular eSaver paying a rate of 2.50%.
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Following Santander’s decision this week, the financial institution’s fixed-rate ISA products now pay the following interest rates:
- 1 Year Fixed Rate ISA – 3.35% AER/Excl. Tax (Fixed)
- 18 month fixed rate ISA – 3.45% AER / excluding tax (fixed)
- Two-year fixed rate ISA – 3.60% AER / excluding tax (fixed)
All new or existing Santnader customers who transfer an ISA of at least £10,000 from another provider to a Santander Fixed Rate ISA will receive the retail voucher.
These rate increases were implemented by the bank as of October 3, 2022
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Hetal Parmar, head of banking and savings at Santander UK, explained why the organization was introducing rate hikes at a time of high inflation.
Mr. Parmar explained, “We understand that saving for the future is important to many people and our increased rates on ISA Cash and 1I2I3 Current Account will increase clients’ money returns, helping them achieve their savings goals.
“For over a decade, our popular 1I2I3 account has provided ongoing value and now customers can earn up to £298 in interest a year, plus cash back on household bills.”
However, with the UK’s Consumer Price Index (CPI) inflation rate at 9.9%, Santander’s latest bid is unable to cope with the financial pressures on the savers.
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Breane Home, personal finance expert at nerdwalletspoke to Express.co.uk about the unique pressures savers are facing at the moment.
She said: “Savers face a perfect storm of economic conditions during a recession that can limit their savings power.
“Interest rates are usually lowered during a recession to help combat a declining economy and encourage growth by making it cheaper to borrow.
“While lower interest rates may help borrowers, it is less beneficial for savers. Rates on savings accounts generally decrease as interest rates fall.
“We saw it most during the coronavirus pandemic when rates on some easy-access savings accounts dropped to just 0.01%.
“This was due to the Bank of England’s strategy of cutting the base rate as a means of protecting the economy.
“If inflation remains high during a recession, there is a risk that savings will also lose value in real terms.
“That means savers can buy less with what they have in the bank.”