Savings deals that track base rate have returned after a 10-year hiatus

Base rate tracker savings accounts disappeared a decade ago, but they have been making a comeback.

Digital bank Kroo launched a base rate tracker current account which tracks 0.9 per cent below the base rate, while Wombat Invest launched an easy-access account that tracks 0.5 per cent below.

Skipton Building Society also launched a tracker cash Isa that tracks 0.55 per cent below.

What is most surprising is that base rate tracker accounts are being launched at a time when experts believe we are at the top of the interest cycle – if not already there.

Not the best time: Base rate tracker accounts have returned to the market, but they may not offer as good a deal as they promise if the base rate starts to drop

A base rate tracker account has a variable interest rate and tracks at a margin below the Bank of England base rate.

This means it will rise with the base rate as it rises. However, if the Bank of England starts to cut the base rate, then the interest will go down at the same rate.

Some economists predict base rate could start falling after the next base rate announcement – but that is of course not guaranteed. 

Is there any point in a tracker account if we are at the top of the market?

Much of this depends on the margin between the tracker rate and bank base rate. 

For example, the Kroo deal means you’ll be earning 4.35 per cent at the current base rate. If the base rate rises to 5.5 per cent in November – the date of the next decision – the rate on the Kroo account will go up to 4.6 per cent.

Andrew Hagger, founder of website MoneyComms, says: ‘This is not a bad deal by any means, but to put it into perspective there are more than 50 easy access savings accounts paying 4.5 per cent or more at the moment.

Anna Bowes, co-founder of website Savings Champion says: ‘It’s interesting to see a number of new tracker deals being launched now, as we are approaching what many feel is the top of the interest rate cycle.

But she continues: ‘At the moment, quite simply, there are better non tracker account rates to be found with easy access rates of over 5 per cent available – and with base rate close to the top of the interest rate cycle, it may be that choosing a tracker simply means you will be set to track the base rate as it falls again.

‘Now might not be the best time, although you could perhaps open a tracker with a minimal amount so that should savings rates start to fall more quickly than base rate in the future, you have an account that you can go to if necessary.’

Mr Hagger agrees. He adds: ‘The thing to bear in mind is that we are very close to the top of the current cycle of base rate increases according to economists, so moves in rates over the next 12 to 18 months are likely to be downwards.

‘In reality savers want to see base rate increases passed on in full but when it comes to decreases I’m sure they are less eager..’

Savings rates have once again become far more tethered to base rate movements.

But with the exception of some tracker accounts, we have not seen any variable rate accounts passing on the full base rate increases. And the increases that have occurred vary wildly from bank to bank.

For example, while Aldermore has increased the rate of its Double Access Saver from 0.75 per cent before the base rate started to increase, to its current level of 4.7 per cent, Barclays has increased the rate on its Everyday Saver from 0.01 per cent to just 1.16 per cent for balances of £10,000 or more, and 1.66 per cent for up to £10,000.

Are any tracker accounts worth it?

The tracker element of a savings account is not always as good as you might think, Bowes warns.

She says: The Dudley Building Society’s Instant Tracker guarantees to never be more than 5 per cent below the Bank of England base rate, but it is currently paying just 2.5 per cent and the interest rate of the Family Building Society Market Tracker Saver is calculated by paying the average of the top 20 easy access rates in the market.

‘But the new Wombat GB Bank Base Rate Tracker tracks more closely to base rate paying 4.75 per cent as it tracks at 0.5 per cent below base rate, whilst the Kroo current account is paying 4.35 per cent. This is a great rate on a current account and guaranteed to track 0.9 per cent below base rate.

‘United Trust Bank’s 180 Day Notice Base Rate Tracker truly tracks base rate, so is currently paying 5.25 per cent at the time of writing, but as the name indicates, you have to give 180 days’ notice to access your cash.

If the base rate goes to 5.5 per cent, Skipton Building Society’s cash Isa tracker will become the best rate on the market.

As a result, James Blower, founder of website Savings Guru says: ‘The Skipton account is definitely worth a look – it’s already only beaten by 5 basis points.

‘The Kroo rate is very good for a current account but there’s several providers paying 5 per cent or more on easy access, so even if the Base Rate goes to 5.5 per cent, it will be well beaten.

‘The current account is definitely worth considering but, for money not needed for day to day expenditure, there’s better accounts out there.

But Blower believes tracker accounts are a sneaky way for banks to cut rates without having to notify customers.

He says: ‘I think we may see more of these base rate linked accounts because we look like we are hitting the peak for rates so providers may favour these linked accounts, which automatically reduce when rates fall, as a way of cutting rates without having to take any action or give notice to savers.’

Hagger says: ‘Tracker savings accounts are fairly niche and I think the appeal is quite limited.

‘While you know your rate will always move in line with bank base rate, it doesn’t mean you’re necessarily getting a good deal.

‘In the past there were issues with some banks not passing on rate rises in full, however now the FCA has a closer eye on savings rates, with its its 14 point plan launched in July, and the new consumer duty rules, I’m not so sure this will be so much of an issue in the future.’

This post first appeared on Dailymail.co.uk