Maximise cash savings in a falling rate landscape
The new year tends to bring personal finances into focus and is therefore an optimal time to consider savings strategies, including protecting the value of existing savings.
The economic backdrop has changed significantly over the last few years. Inflation has finally started to cool and monetary policy is easing.
The Investec economics team is currently forecasting two rate cuts to the Bank of England rate over the course of this year, to bring the Bank Rate to 3.25 per cent suggesting the generous returns on cash savings that defined the last two years are a thing of the past.
A different interest rate landscape
After decades of negligible returns, cash became an attractive asset class in its own right following the global pandemic, as rampant inflation led to interest rate hikes which allowed savers to achieve rates of over 5 per cent on easy access accounts and even higher on fixed accounts.
Starting in late 2021, the base rate was raised repeatedly from around 0.10 per cent to 5.25 per cent in August 2023 to combat rising inflation, creating the highest savings yield environment since the global financial crisis in nominal terms. This boosted savings across the UK. Total sterling cash deposits and savings held by UK households reached over £1.9 trillion in October last year, up from £1 trillion a decade earlier, according to Bank of England data.
However, that environment has now changed; inflation has cooled and monetary policy is starting to ease. As a result, savers holding significant liquidity are now facing the challenge of locking in attractive rates before inevitable reductions.
For many savers, cash is spread across several accounts opened at different times, often at rates that are no longer available. Reviewing these balances is as crucial as rebalancing investment portfolios. It’s essential to determine whether your savings pot has the right balance between stability and flexibility.
Rethink your cash savings ‘buckets’
When reviewing your savings, it’s often helpful to view them as different pots with a clear purpose.
· Instant access: money you may need at short notice.
· Notice accounts: funds required for future plans but still available in a few weeks or months if required.
· Fixed-term accounts: cash that will not be required for a defined period.
This helps to avoid holding too much cash which is doing too little or locking away money that may actually be required.
Instant access savings: the first line of defence
Despite lower rates, instant access savings accounts remain the bedrock of a sensible financial plan. They hold emergency funds, cover everyday spending fluctuations, and enable quick action if an unexpected expense or opportunity arises.
The decision on how much to hold in an instant-access account is based on practical rather than technical considerations.
Are there sufficient funds in the event of an urgent need arising? Is there too much sitting in this bucket out of habit? Reviewing this balance once or twice a year can prevent large amounts of money sitting idle when it might be better placed elsewhere.
Notice savings accounts: structure without loss of control
Notice accounts sit between instant access and fixed-term savings. They require advance notice ahead of withdrawal, which encourages increased discipline, but still mean funds are within reach.
These accounts work well for planned expenses such as tax bills, home improvements, or larger purchases. The notice period requires thinking ahead without a total loss of flexibility.
If the instant access pot has grown to a level above what is genuinely required for day-to-day security, moving a portion into a notice account is a straightforward method to make savings work harder while staying in control.
Fixed-term savings accounts: matching money to key moments
Fixed-term accounts involve committing to save for a set period in exchange for a predictable return. They are most suited to funds not required for some time.
An effective strategy for a fixed-term account is to align the term with specific goals or milestones such as a property purchase. Choosing a fixed term account that matures around the time of the proposed significant spend can provide clarity and peace of mind.
Many savers also spread fixed term accounts over a number of different end dates so that part of their savings become available each year, thus keeping their options open. This strategy, known as laddering, avoids the requirement to predict exactly where interest rates will go. It’s the fixed income equivalent of “pound cost averaging” in equities as it mitigates the risk of adverse economic surprises.
Bringing it all together
The ultimate requirement is to ensure that the right amount of cash is held in the right place.
A healthy savings structure typically has enough instant access savings to cover emergencies and short-term requirements, supported by a layer of notice accounts to cover foreseeable expenses and core fixed-term savings aligned with medium-term plans.
Purposeful savings in a changing environment
Interest rates and products will continue to change but the core questions are: how much liquidity and flexibility is required and how much certainty are you comfortable locking in?
Organising savings around these principles, rather than offers or headlines, makes it possible to build a supportive, long-term strategy. As 2026 begins, a deliberate rebalancing of savings may be one of the most effective tactics to achieve your future financial goals. Unlock the power of UK savings | Investec Save
Important information: The views expressed are those of the contributors at the time of publication and do not necessarily represent the views of the firm and should not be taken as advice or recommendations. Investec Bank plc is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. Financial Services Register number 172330. Registered in England and Wales No. 489604. Registered office at 30 Gresham Street, London EC2V 7QP. Member of the London Stock Exchange.