What is a tracker savings account and how does it work?

Learn more about the pros and cons of tracker savings accounts.

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Rachel Wait

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The Bank of England base rate has seen significant movement in recent years, rising sharply after a long period of record lows. While higher rates have been challenging for borrowers, they’ve given savers a chance to earn more on their money after years of poor returns.

However, with the base rate now stabilising – and expectations of future cuts on the horizon – we look at whether tracker savings accounts are still worth considering.

Key takeaways

  • Tracker savings account track the Bank of England base rate.
  • Some tracker accounts don’t allow withdrawals during the term.
  • Many easy-access savings accounts track the Bank of England base rate.
  • When cuts are made to the base rate, you might want to look at a fixed rate bond.

What are tracker savings accounts?

A tracker savings account is a type of savings account with an interest rate that tracks the Bank of England base rate. There aren’t many of these accounts on the market, but if you can find one, the interest rate on your account goes up when the base rate rises and falls when the base rate drops. This means they can be a worthy investment at a time when rates are rising, but less so when they are falling.

How do tracker savings accounts work?

Tracker savings accounts often track at a fixed amount above or below the base rate, but in some cases, they might follow the base rate exactly.

As an example, if you had an account paying 0.5% below the base rate and the base rate was currently 5%, your account would pay 4.5%. If the base rate then rose to 5.5%, your savings rate would also rise to 5%. But if the base rate fell to 4.5%, your savings rate would drop to 4%.

Tracker savings accounts typically only last for a fixed term – say 2 years. Some accounts won’t allow withdrawals during this time, while others will, so be sure to check.

Is my money safe?

If your savings account is with a bank or building society authorised by the Financial Conduct Authority (FCA) or Prudential Regulation Authority (PRA), your savings will be covered by the Financial Services Compensation Scheme (FSCS) up to a limit of £120,000. FSCS protection means that if the bank or building society goes bust, you still get your money back.

Pros and cons of tracker savings accounts

Pros

  • Your savings rate increases when the Bank of England base rate goes up
  • Tracker savings accounts can often be opened with a small deposit
  • Some accounts permit withdrawals, so you can move your money elsewhere if needed

Cons

  • If the base rate falls, so will your savings rate
  • Some accounts won’t permit withdrawals during the account's term
  • There are not many tracker accounts on the market

Bottom line

Choosing a tracker savings account can enable you to make the most of rising interest rates. However, it’s important to check the account’s terms carefully to find out whether the account tracks at a percentage above or below the base rate and whether you can make withdrawals.

What’s more, if you are thinking about applying for a tracker account, you should keep a close eye on what the base rate is expected to do. If the base rate is likely to fall in the coming months, you might be better off looking for a different type of savings account instead, such as an easy access account or a fixed rate bond.

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Rachel Wait is a freelance journalist and has been writing about personal finance for more than a decade, covering everything from insurance to mortgages. She has written for a range of personal finance websites and national newspapers, including The Observer, The Mail on Sunday, The Sun and the Evening Standard. Rachel is a keen baker in her spare time. See full bio

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