In recent years, you might have been enjoying seeing your savings grow thanks to higher interest rates.
The Bank of England (BoE) began increasing interest rates at the end of 2021 to curb inflation following the coronavirus pandemic, and the base rate peaked at 5.25% in August 2023.
However, interest on savings has begun to fall. The BoE cut the base rate from 4.25% to 4% on 7 August 2025, which was the bank’s fifth cut since last August. According to Moneyfacts, as of 8 August 2025, the best interest rate for an easy access savings account is 4.84%.
What’s more, MoneyWeek has reported that the International Monetary Fund (IMF) expects the BoE to make two further cuts in 2025, bringing the base rate to 3.75% by the end of the year.
As the cost of living crisis continues, you’re probably keen to make your money go further. So, keep reading to discover four practical tips for making the most of your cash savings when interest rates dip.
1. Review your current savings
The first step towards maximising your cash savings is to check what interest rate you’re currently receiving.
While this might sound obvious, research published by MoneyAge has revealed that 35% of British adults don’t know how much interest their current or savings accounts earn.
If you opened an account some time ago, when interest rates may have been higher, your money could be growing much more slowly than you think it is.
2. Shop around for the best rates
Once you understand how your current savings are performing, you can start shopping around for a better deal.
Even when interest rates are falling, you might find that another provider offers more favourable rates than you’re currently getting.
However, it’s easy to bump this financial admin task down your to-do list when life gets busy. Indeed, the Building Societies Association has found that 31% of UK savers never compare the rate on their savings account to others available. As a result, they could potentially miss out on over £800 extra income a year.
In contrast, switching savings accounts could help you earn more interest and ensure that your money is working as hard as possible for you.
3. Make the most of your ISAs
Individual Savings Accounts (ISAs) allow you to save and invest money without paying tax on the interest or returns you earn. In the 2025/26 tax year, you can contribute up to £20,000 tax-efficiently across your ISA accounts.
In contrast, any savings held outside an ISA may be taxed when you exceed certain thresholds. So, if interest rates fall, ISAs may become an even more valuable way to maximise your returns.
You can use your annual ISA allowance on a single account or spread across different types of ISAs. The two most common types are Cash ISAs and Stocks and Shares ISAs.
Cash ISAs are a secure way to grow your savings by earning interest. While Stocks and Shares ISAs allow you invest in the stock market and potentially generate returns.
If the interest rate on cash savings drops, investing more through a Stocks and Shares ISA might offer the potential for higher returns and the chance to outpace inflation over time.
However, the value of investments in a Stocks and Shares ISA could go up or down, so it’s important to ensure that you’re comfortable with this level of risk.
4. Consider fixed-term savings accounts
Fixed-term savings accounts allow you to lock in an interest rate for a predetermined period, typically from six months to five years.
As such, you’ll have peace of mind that your returns will not be affected by market volatility or fluctuations in the BoE base rate.
Moreover, in return for leaving your savings untouched for the agreed term, you’ll generally receive a higher interest rate than if you put your money in an easy access or variable-rate account.
One potential drawback of this type of account is that you could face a penalty for early withdrawals. So, think carefully about whether you’re likely to need access to your savings in the short to medium term before committing to a fixed-term deal.
Even if you can afford to leave your money locked away, the BoE could raise the base rate. As a result, you may want to move your savings to take advantage of higher interest rates being offered elsewhere. However, if you’ve still time to run on your fixed term, this could result in an early withdrawal charge.
Get in touch
We can assist you in reviewing your current financial situation and ensure that you’re making the most of your savings.
To learn more about how we can help, please email hello@sovereign-ifa.co.uk or call us on 01454 416653.
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.
Please do not act based on anything you might read in this article. All contents are based on our understanding of HMRC legislation, which is subject to change.
The Financial Conduct Authority does not regulate tax planning.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
Approved by Best Practice IFA Group Ltd on 15/8/25