26 June 2025
general
The Bank of England (BoE) is the UK’s central bank, which means it’s responsible for maintaining many aspects of monetary policy.
One of the ways it does this is through the base rate, which is the interest rate the BoE sets when lending money to other banks and financial institutions. The BoE’s Monetary Policy Committee (MPC) assesses the base rate eight times a year to determine whether it should stay, rise, or fall.
On 19 June 2025, the MPC gathered and chose to hold the base rate at 4.25%.
Despite sticking with 4.25% for now, experts suggest that it could drop as the year progresses. This is Money reports that we might see two further 0.25% cuts before the end of the year, potentially bringing the base rate to 3.75% by Christmas.
For this reason, it may be wise to act now before interest rates start falling further. Here, learn how the base rate can affect the interest you earn on your money, and how to continue saving effectively in a falling rate environment.
The Bank of England uses the base rate to try and keep the economy stable
The BoE’s base rate is the official interest rate at which commercial banks borrow money, and it’s an important tool used to manage inflation and support economic stability.
As inflation was reaching its peak, the BoE chose to rapidly increase the base rate. Here, you can see the correlation, using Office for National Statistics and BoE data:
The reason the BoE moves the base rate in line with inflation is to try and encourage less spending and more saving. It does this by increasing the base rate, making borrowing more expensive for other banks, which in turn makes borrowing more expensive for you.
On a more positive note, a higher base rate typically means higher interest rates on savings products.
Conversely, once the base rate drops, you’ll likely see a ripple effect as many providers start lowering their rates. You might have already experienced this in 2025 if you have savings accounts with variable rates.
Now that the BoE is lowering the base rate, you might see lower returns on some of your accounts. That’s why acting before any upcoming changes could be most beneficial to your financial plan.
Indeed, by acting sooner rather than later, you could have the opportunity to:
With all this in mind, here are three strategies to consider as interest rates look poised to fall.
1. Consider fixed-term savings accounts
Fixed-term savings accounts allow you to lock in an interest rate for a set period, typically from six months to five years. In exchange for committing your money for this term, you generally receive a higher, guaranteed interest rate than what might be available through easy access accounts.
If you won’t need access to that portion of your savings for a certain period, then a fixed-term account could protect you from future rate cuts.
Usually, the longer the term, the higher the rate could be, but early withdrawals may incur penalties.
2. Make full use of your Individual Savings Accounts
An Individual Savings Account (ISA) allows you to save money without paying tax on the interest you earn. For the 2025/26 tax year, your total ISA allowance is £20,000, which you can spread across various ISA types.
The two most common types of ISA are Cash ISAs and Stocks and Shares ISAs. As their names describe, Cash ISAs are best for saving your money in a low-risk environment, whereas a Stocks and Shares ISA allows you to invest.
Lower interest rates can be good news for shares, as they make it cheaper for companies to borrow money. This, in turn, can help boost their earnings and support growth in the stock market.
Here, you could use a Stocks and Shares ISA to help offset any diminishing rates of return from cash. Additionally, you may see greater levels of capital return from bonds as they may increase in price as interest rates fall.
Finally, if you’re saving cash outside of an ISA, such as in a fixed-term or easy access account, keep your Personal Savings Allowance (PSA) in mind. Your PSA means that each tax year:
This is another advantage of ISAs, as any interest you earn on ISA savings is free from Income Tax.
Always be sure to balance your saving and investing with ensuring you have a robust emergency fund in place.
3. Shop around for competitive rates
Even when interest rates are falling, some banks and building societies will offer more competitive rates than others, so it’s worth shopping around.
That being said, it’s important to look beyond temporary “headline” offers, which are often designed to attract new customers. They might have higher rates in the short term, but may not be right for you in the long run.
Remember, different accounts are suited to different savings needs, and you might consider using multiple saving and investing accounts to meet your goals.
Get in touch
We can help you decide what to do with your cash in savings as markets shift and adapt to economic changes.
Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about how we can help you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate tax planning.
