Important information - the value of investments and the income from them can go down as well as up, so you may get back less than you invest.
The Bank of England reduced interest rates a quarter of a percentage point to 4.25% at its 8 May rate-setting meeting.
It means rates have now fallen by a full percentage point since their peak in July of 2024. Market bond prices are now pointing to three more quarter-point cuts from the Bank’s Monetary Policy Committee (MPC) over the rest of 2025.
The MPC was split three ways - five members voted for a quarter point cut, two for a half-point cut and two for no change. The fact that two members opted for an even bigger reduction indicates how the momentum for rate reductions has been building.
Expectations for where rates will end in 2025 have been moving downwards for months and are now at least half a percentage point lower than was the case at the start of the year.
The announcement on 2 April of trade tariffs on international partners by US President Trump has provided the most recent downward pressure. The White House has signalled a partial U-turn on tariffs since then, but economists still expect a significant impact from the policy.
Tariffs complicate the picture for interest rates. On the one hand they are likely to be inflationary, making it harder for central banks to lower rates as inflation comes under control. Yet, they are also likely to slow down growth, taking momentum out of economies.
Markets appear to be betting on tariffs prompting central banks to lower rates more quickly to ease economic conditions.
The MPC will be keeping a close eye on both growth and inflation as it weighs the case for further cuts this year. Inflation fell slightly more than expected in March, from 2.8% to just 2.6%. That is still above the Bank’s 2% target, and the Bank of England expects the consumer price index (CPI) measure to rise again this year, but the bigger than-expected fall eases the way for faster rate reductions.
The next central bank meeting is scheduled for 19 June 2025 followed by meetings on:
- 7 August
- 18 September
- 6 November
How rates have changed
The path ahead for interest rates, as implied by market prices, has been changing. The chart below shows the implied level of interest rates from the 18 March 2025, 9 April 2025 and 7 May 2025.
This is based on market prices for government bonds with different lengths of maturity.
On an 18-month view, the implied level has shifted 0.51 percentage points lower between the 18 March and 7 May readings. These rates are only indicative - in reality the Bank moves rates in 0.25 percentage point increments.
That translates into two extra cuts during the 18-month forecast period.
Will mortgage rates fall?
As a general rule, if the Bank of England lowers interest rates then mortgage rates tend to fall as well. Ultimately, however, it is up to lenders to decide the rates they offer and changes to mortgage deals can often run ahead or behind changes in the Bank rate.
Mortgage rates have fallen from a peak in 2023. Rate cuts accelerated in April as financial markets moved their expectations for rates this year lower. Most major lenders now offer rates below 4% on their best deals. As of 8 May 2025, the best rate on a five-year fixed rate mortgage was 3.87%1.
Will cash savings rates fall?
The rates you see on cash savings are set by account providers who compete with each other to win savers’ deposits. While not directly linked to movements in the Bank of England rate, they do tend to correlate with it. The predicted falls in the Bank Rate are, therefore, likely to be accompanied by falling savings rates as well.
The rates on best-buy cash accounts have been declining since last summer. This has pushed headline rates lower but has also encouraged savings providers to add in conditions which potentially reduce the rate you get. Many of the highest-paying accounts include an element of interest which is temporary and will fall out after six months or a year. Alternatively, you may lose several months interest if you withdraw money from the account.
Currently, the highest interest is being paid on Cash ISA accounts. As of 30 April 2025, the best rate on a Cash ISA which allows easy access to your money and doesn’t include temporary bonus rates is 4.52%2.
Cash options - the best ways to save
There are a number of potential homes for money if you decide to hold it in cash.
It makes sense to shield your cash returns from tax if you can, which means using part of your £20,000 annual ISA allowance to hold cash. Cash ISAs do this job - although any allowance you use for cash cannot then be used for investments.
Non-ISA cash accounts also exist but returns are potentially subject to tax at your rate of income tax, subject to certain allowances.
For this reason, some savers choose Premium Bonds, where there is no guaranteed rate of interest but monthly prizes are paid instead. Prizes are tax free but the rates of return on Premium Bonds have also been falling. Moreover, you have to have above average luck in order to get those rates.
An increasingly popular cash option is to move cash savings to an investment account but utilise assets which produce a cash-like return while rates remain somewhat attractive. That would allow you to take advantage of above-inflation return from cash while it lasts, but also leave you ready to switch to investments if and when that suits you.
Cash funds or money market funds held inside investment accounts can do this job. The Fidelity Cash Fund is the best-selling cash fund on the Fidelity Investing platform and is forecast to produce 4.96% of income in the coming year - or 4.61% after deducting the Fidelity platform charge of 0.35%. Please note this yield could go down or up and is not guaranteed.
- Read more about the Fidelity Cash Fund
Fidelity: current interest rates we pay on cash
Here are the current interest rates we pay on cash held in our accounts. This includes our -
- Stocks and Shares ISA (including Junior ISA)
- Investment Account
- Cash Management Account
- Self-Invested Personal Pension (SIPP) (including Junior SIPP)
Please note that interest rates can be changed at any time and the rates below have been applied since 1 May 2025.
| Account | Gross rate of annual interest | Annual Equivalent Rate (AER) |
|---|---|---|
| ISA (including Junior ISA) | 2.95% | 2.99% |
| Investment Account | 2.95% | 2.99% |
| Cash Management Account | 2.95% | 2.99% |
| SIPP (including Junior SIPP) | 3.00% | 3.04% |
Source:
Important information - investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Reference to specific securities should not be construed as a recommendation to buy or sell these securities and is included for the purposes of illustration only. An investment in a money market fund is different from an investment in deposits, as the principal invested in a money market fund is capable of fluctuation. Fidelity's money market funds do not rely on external support for guaranteeing the liquidity of the money market funds or stabilising the NAV per unit or share. An investment in a money market fund is not guaranteed. The value of shares may be adversely affected by insolvency or other financial difficulties affecting any institution in which the Fund's cash has been deposited. There is a risk that the issuers of bonds may not be able to repay the money they have borrowed or make interest payments. When interest rates rise, bonds may fall in value. Rising interest rates may cause the value of your investment to fall. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not be possible until you reach age 55 (57 from 2028). This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to one of Fidelity’s advisers or an authorised financial adviser of your choice.
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