Bank Rate and Savings Rates: What Banks Pay and Why

We do not name a bank or quote account rates, because each provider sets its own. The Bank of England’s Bank Rate, 3.75% as at 27 October 2026, is the starting point: the Bank of England says it affects banks’ own savings rates. Interest above your tax allowances is taxed, and the FSCS protects deposits up to £120,000.

Tax year 2026/27. Last reviewed 27 October 2026.

People searching for the bank with the highest interest rate usually want a list of current rates. A list like that needs a date and a source for every figure, and it goes out of date when a provider changes a rate. Bank Rate is a figure you can read from a primary source, so this guide starts there.

Table of Contents

What is Bank Rate and who sets it?

The Bank of England’s page describes Bank Rate as the interest rate it pays to commercial banks and other institutions that hold money with it. It is also the rate the Bank charges on loans it may make to them. Its Monetary Policy Committee sets it and meets eight times a year. The aim is to return inflation to, or keep it at, the 2% target over time (Bank of England, Bank Rate page).

The Bank gave Bank Rate as 3.75% when we read the page on 27 October 2026. The committee held it at that level on 17 September 2026.

How does Bank Rate reach your savings account?

The Bank of England says Bank Rate affects banks’ own lending and savings rates. When it raises Bank Rate, banks will usually increase what they charge customers on loans and the interest they offer on savings. The reverse happens when it lowers Bank Rate.

Banks usually follow, but each bank or building society decides what it pays on each account, so two providers can respond differently to the same decision. We do not forecast what any provider will do.

What does a change in interest rates mean in pounds?

A worked example shows the scale. These two rates are assumptions to make the sums easy. They are not market rates and not a forecast. Take £10,000 left in an account for one year with no withdrawals and no tax.

At an assumed 3%, the interest is £300.
At an assumed 4%, the interest is £400.

One percentage point on £10,000 is therefore £100 a year.

When is the next Bank Rate decision?

The Bank of England’s page shows the next decision as due on 5 November 2026. A decision can leave Bank Rate unchanged, as on 17 September 2026. Your account terms say whether your own rate can change after a decision (Bank of England).

How much of the interest do you keep?

Outside an ISA, interest is taxable, but allowances cover some of it. GOV.UK gives a Personal Savings Allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get £0. You may also get a starting rate for savings of up to £5,000 if your other taxable income is under £17,570. The starting rate falls by £1 for every £1 of other income above your Personal Allowance.

GOV.UK gives an example. A basic rate taxpayer with £1,300 of interest has the first £1,000 untaxed. The remaining £300 is taxed at 20%, so the tax due is £60.

The allowance is a limit on interest, so the balance it covers depends on the rate. Using our assumed rates from above, £1,000 of interest is earned on £25,000 at 4%, or about £33,333 at 3%. A fall in rates means a larger balance can sit inside the allowance. Interest on cash in an ISA is not taxed, and you do not need to declare it (GOV.UK ISA guide). The ISA limit is £20,000 for 2026/27. From 6 April 2027 the savings rates of Income Tax become 22% basic, 42% higher and 47% additional (Finance Act 2026, section 5).

Is my money safe if a bank fails?

The Financial Services Compensation Scheme (FSCS) protects deposits at UK-authorised firms (banks, building societies and credit unions) up to £120,000 per eligible person, per authorised firm. The limit rose from £85,000 to £120,000 on 1 December 2025. Banks that share a banking licence count as one bank. The FSCS says you can search the Financial Services Register on the Financial Conduct Authority’s website to see which banks share a licence.

What should you check on a provider’s own page?

Whether the rate can change after you open the account, and when it is paid.
How you get your money out, and whether any charge applies.
Whether it is an ISA, which uses part of your £20,000 allowance.
Which banking licence the firm uses, for the FSCS limit.
The date on the page, because a rate quoted anywhere else may be older.

For help choosing between providers, see our guide to online savings accounts.

Frequently asked questions

Which bank pays the highest savings interest rate?

We do not rank banks or quote rates. The Bank of England says Bank Rate affects banks’ own savings rates, so each provider chooses its own. Check the rate and the terms on the provider’s own page on the day you apply, and check who protects the money.

What is the current Bank Rate?

The Bank of England gives Bank Rate as 3.75% as at 27 October 2026. The Monetary Policy Committee held it on 17 September 2026 and its next decision is due on 5 November 2026. The committee meets eight times a year, so check the Bank’s page before relying on the figure.

If Bank Rate falls, will my savings rate fall?

The Bank of England says banks usually raise what they pay on savings when Bank Rate rises, and the reverse when it falls. “Usually” matters: your provider decides, and your account terms say whether your rate can change. Read the terms or ask the provider before you rely on a rate.

How much savings interest can I earn without paying tax?

GOV.UK gives a Personal Savings Allowance of £1,000 for basic rate taxpayers and £500 for higher rate taxpayers. Additional rate taxpayers get £0. A starting rate for savings of up to £5,000 may also apply. Interest in an ISA is not taxed and does not count towards these allowances.

How much of my savings is protected if a bank fails?

The FSCS protects deposits up to £120,000 per eligible person, per authorised firm, since 1 December 2025. Banks that share a banking licence count as one bank, so the limit applies to the total across them. The FSCS says you can check which banks share a licence on the Financial Services Register.