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NatWest increases interest rate on savings account to 5% - can it beat inflation?

Daily Express logo Daily Express 24/09/2022 Patrick O'Donnell
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The bank hiked the rate of its regular savings account earlier this week from the previous 3.75 percent on offer. This comes as banks and building societies are looking for ways to mitigate the damage of rising inflation on savings accounts. Recently, the Bank of England raised the country's base rate to 2.25 percent with NatWest being one of the financial institutions passing on these consecutive rate increases to savers.

After NatWest's most recent interest rate increase, the Digital Regular Savers pays five percent gross (5.12 percent AER) on balances between £1 to £1,000.

If this amount is exceeded and below £5,000, the bank will reduce the rate to 0.50 percent AER.

All balances greater than £5,000 will see the savings account drop to an interest rate of 0.50 percent.

Due to being a regular savings account, NatWest's product requires a monthly contribution of at least £1 per month.

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NatWest bank with inflaiton rate © GETTY NatWest bank with inflaiton rate

David Lindberg, the CEO of Retail Banking at NatWest, discussed why the bank is choosing to raise interest rates and offer deals to customers at this time.

Mr Lindberg explained: "We provide a range of practical support for customers to help them with budgeting and saving as part of our commitment to help people build their financial resilience.

"Customers will be welcomed with £175 and can earn five percent on their savings.

"They will also have the chance to win £1,000 by turning on our Round Ups feature which rounds up transactions to the nearest pound and automatically sends the spare change into their savings account."

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However, savers are experiencing an unprecedented assault on their savings due to inflation which is diminishing any potential returns.

Currently, the UK's inflation rate is at 9.9 percent which is significantly higher than the five percent offered by NatWest's account.

While the most recent figure is slightly lower than the previous months, inflation is expected to remain high for the foreseeable future.

Despite the Bank of England's best efforts to address this issue by raising interest rates, experts are warning there is only so far financial institutions can go in beating inflation.

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Interest rates graph © EXPRESS.CO.UK Interest rates graph

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown, highlighted the limitations these interest rate increases have on helping savers.

Ms Coles said: "Rises won't reach the whole market through, and the high street giants are still likely to be dragging their feet in passing rate rises on.

"Right now, you're likely to be getting less than half a percent of interest on a branch-based easy access account, when the best easy access rate on the market offers over two percent.

"It's not worth hanging on for them to do the right thing. You can switch now and get a better rate today."

Interest on calculator © GETTY Interest on calculator

better for them.

She added: "With inflation running so high, it's also worth thinking about getting your savings to work harder.

"It means that once you have an emergency savings safety net of three to six months' worth of essential expenses in an easy access account, it's worth considering tying some of your savings up for a year, and cash in on competition between the challenger banks."

The inflation rate for September 2022 will be announced later next month.

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