The Bank of England Base Rate, also known as Bank Rate, holds significant influence over the UK's financial landscape, impacting borrowing costs, mortgage rates, and savings interest. 

It's important to understand the Bank of England Base Rate and how it affects your financial decisions. In this guide, we'll explain what the Bank of England Base Rate is, how it influences interest rates, its impact on the economy, and why it plays a role in influencing spending and inflation.

‍

What are Interest Rates?

Interest rates refer to the percentage charged or earned on borrowed money or invested funds. 

Lenders charge interest on loans as compensation for the risk and opportunity cost of lending money, while savers earn interest on their deposits as a reward for entrusting their funds to financial institutions. Learn more about interest rates.

‍

What is the Bank Rate?

Bank Rate, often referred to as the Bank of England Base Rate, is the key interest rate set by the Bank of England. It acts as a tool for controlling inflation and stabilising the economy. 

The Bank of England assesses economic conditions and adjusts Bank Rate accordingly to support the government's inflation target and ensure economic stability.

‍

How Bank Rate Affects Your Interest Rates:

Changes in Bank Rate have a ripple effect on various interest rates throughout the economy. Here's how it influences your financial decisions:

• Mortgage rates: Bank Rate influences the cost of borrowing for banks, impacting the interest rates they offer on mortgages. When Bank Rate rises, mortgage rates tend to increase, making borrowing more expensive. When Bank Rate decreases, mortgage rates may go down, providing potential savings for homeowners.
• ‍Savings interest rates: Bank Rate also affects the interest rates offered on savings accounts. Higher Bank Rates generally result in higher savings interest rates, potentially increasing the returns on your savings. Lower Bank Rates may lead to reduced savings interest rates.

‍

How Changes in Bank Rate Affect the Economy:

Changes in Bank Rate have a significant impact on the broader economy. Here are some key effects:

1. Borrowing costs: Changes in Bank Rate directly influence the cost of borrowing for individuals, businesses, and financial institutions. Higher rates increase borrowing costs, potentially curbing spending and investment. Lower rates encourage borrowing and stimulate economic activity.
2. ‍Inflation: Bank Rate plays a crucial role in managing inflation. When inflation is rising, the Bank of England may increase Bank Rate to reduce spending and control price increases. During economic downturns, lowering Bank Rate can encourage borrowing and spending, boosting economic activity.

‍

Why Does Bank Rate Influence Spending and Inflation?

Bank Rate influences spending and inflation primarily through its impact on borrowing costs. When borrowing becomes more expensive due to higher interest rates, individuals and businesses may reduce their spending, leading to a potential slowdown in economic activity and inflation.

Lower interest rates make borrowing cheaper, encouraging spending, investment, and economic growth. How do interest rates affect inflation? 

‍

Bank Rate Summary

Understanding the Bank of England Base Rate is crucial for making informed financial decisions in the UK. The rate directly affects interest rates on mortgages and savings, impacting borrowing costs and potential returns. 

Changes in Bank Rate have far-reaching effects on the broader economy, influencing spending, investment, and inflation levels.

The big money on Wall Street is changing its tune. According to the latest Bank of America Global Fund Manager Survey¹, professional investors are the most optimistic on global equities investing they’ve been since February, snapping up stocks at a rate not seen in seven months.

So, what's behind this sudden surge of optimism?

‍

Two big fears have faded

Previous months’ data has reflected fears in the market of a global recession triggered by a trade war, and central banks hiking interest rates to tackle inflation. September’s data shows that fund managers believe the worst of both threats is now in the rearview mirror.

1. Fears of a trade war are rapidly diminishing. This has caused the biggest one-month jump in global growth expectations in nearly a year.
2. Investors are now betting heavily on the Federal Reserve starting to cut interest rates. With inflation concerns easing, 47% of managers expect the Fed to cut rates four or more times in the coming year. Cheaper borrowing costs tend to boost stock market growth, and managers are positioning their portfolios accordingly.

‍

So, what are they buying?

The survey shows that cash levels remain low, meaning these giant funds are holding back less of a safety net for unforeseen changes. 

The destination for much of this cash is the "Magnificent 7" — the huge US tech firms like Apple, Microsoft, and NVIDIA that have become household names. It's a powerful vote of confidence in the biggest growth drivers of the global economy.

Managers are backing AI with 48% of respondents thinking “AI stocks are not in a bubble” and 50% said “AI is already increasing productivity”. 

‍

How you can get involved with Chip

Investing with Chip gives you access to a curated range of investment funds. These funds give you access to a basket of assets, including the global and tech stocks mentioned here — but you won’t need to pick the winners. Funds like the S&P 500, NASDAQ 100, and FTSE All-World track the price of hundreds of companies, with the “Magnificent 7” stocks currently leading these indexes. 

Start investing from £1. Open a Stocks & Shares ISA or General Investment Account, and you can get started in a few simple steps!

‍

Sources

¹TradingView

What are the types of investment accounts in the UK?

• Stocks & Shares ISA
• General Investment Account (GIA)
• Stocks & Shares Lifetime ISA (LISA) - not available with Chip
• Workplace Pension - not available with Chip
• Self-Invested Personal Pension (SIPP) - not available with Chip
• Investment Bond - not available with Chip

‍

What is a Stocks & Shares ISA?

A Stocks & Shares ISA is your tax-efficient friend when it comes to any gains you might make on your investments. 

Why choose an SSISA?

They’re tax-free

Unlike the General Investment Account, any returns on your portfolio within your SSISA remain free from income tax. This is often referred to as a ‘tax wrapper’ on your ISA. 

You also won’t owe any capital gains tax if you decide to sell your investments at a higher price than you bought them, or any tax on dividends you earn.

With Chip – It’s flexible

Another added benefit to a Chip Stocks & Shares ISA, is it’s flexible, you can withdraw and redeposit funds from your ISA without it affecting your annual ISA allowance. 

For example, if you deposited £10,000 into your SSISA in May, and then needed to make a withdrawal of £1000 on June; once you redeposit the £1000 in July, you would still only have used £10,000 of your ISA allowance (tax year runs from April 6 to April 5 the following year). 

What are the drawbacks?

You are currently limited to invest or save £20,000 per year across all your ISA’s. So, you’ll need to make sure you keep track of all your ISA’s between platforms. In the Chip app, it’s easy to view your ISA allowance with us in the ‘Profile’ tab. 

It’s also worth remembering that having multiple SSISA’s could come with paying a variety of fees, which may work out greater than holding all your SSISAs in one place. Learn more about investment fees.

Can you have a Cash ISA & a Stocks & Shares ISA?

Yes! If you already have a Cash ISA, you’re able to open a Stocks & Shares ISA, and have both at the same time but don’t forget you are currently limited to invest or save £20,000 per year across all your ISA’s. 

Previously, it was only possible to hold one type of ISA at a time, so you’d be limited to one of each (Cash ISA and Stocks & Shares ISA), but as of April 2024, you are allowed to hold multiple of each type of ISA, with the exception of a Lifetime ISA, where you are only allowed one open at any one time. 

‍

What is a General Investment Account (GIA)?

A General Investment Account (GIA) is the standard option for investing as much as you like, without the ‘tax wrapper’ of the Stocks & Shares ISA. 

Why choose a GIA?

With a GIA, you aren’t restricted to the £20,000 investment per tax year that the SSISA is. You can take advantage of unlimited deposits and withdrawals, without worrying about what you might have invested elsewhere. 

This gives you the freedom to open multiple GIAs and deposit as much as you like to take advantage of the best rates. For example, with a Chip X subscription, you can take advantage of 0% platform fees which can save you thousands over time as your portfolio grows. 

What are the drawbacks? 

With a GIA, investors are liable to be taxed on their investments. If your investments have grown in value, you may owe Capital Gains Tax (CGT) on these gains. However, every tax year you get an ‘Annual Exempt Amount’. 

For the 2025/2026 tax year this is £3000, so anything above this amount is taxed at 18% for basic rate taxpayers, and 24% for higher rate and additional taxpayers. 

You are also liable to be taxed on any dividends you receive from income funds that pay out on your gains. Similar to the CGT rules, you are given an allowance per tax year, which for 2025/2026 is £500.

Beyond this the tax rate is 8.75% for basic rate taxpayers, 33.75% for higher rate taxpayers, and 39.35% for additional rate taxpayers.   

‍

What is a Stocks & Shares Lifetime ISA?

A Stocks & Shares Lifetime ISA (LISA) is similar to a Stocks & Shares ISA, but was designed to help you buy your first home (up to a value of £450,000) or save for retirement (withdrawal after age 60), offering a 25% government bonus of up to £4,000 per year. 

For example, if you invest the maximum £4000, the government will give you a £1000 bonus per year. 

Your money is invested, like in a Stocks & Shares ISA, so it has the potential to grow, but early withdrawals (outside of a first home or retirement after 60) will incur a 25% penalty, making a LISA more of a commitment. 

You must be aged 18-39 to open a LISA, and can only hold one LISA at any one time. 

‍

What is a Workplace Pension?

A Workplace Pension is a way to save for your retirement, set up through your employer. Each time you’re paid, a portion of your salary is automatically put into your pension, and your employer adds a contribution (currently a minimum of 3% on qualifying earnings). 

You’ll also get tax relief on what you contribute, which helps boost your savings. Most people are enrolled automatically if they meet certain criteria (age and salary), but you can opt out if you wish.

While you won’t be able to access your pension until you’re 55 (rising to 57 from 2028), it’s a great long-term investment account, especially with the free boost from your employer. 

‍

What is a Self-Invested Personal Pension (SIPP)?

A SIPP is a personal pension that gives you much more control over where your money is invested, think of it as a DIY pension. Unlike workplace pensions, where investment choices are often limited, a SIPP lets you pick from a wide range of funds, shares, and other assets.

You’ll still get tax relief on what you contribute, just like with a workplace pension, and you can contribute up to 100% of your income (up to £60,000 a year) tax-free.

It’s ideal for people who are self-employed, or those who want to supplement their workplace pension and have more say in how their pension pot is invested.

‍

What is an Investment Bond?

An Investment Bond is a type of investment product that usually includes life insurance and often provides favourable tax treatment. You pay a lump sum into the bond, and it’s then invested on your behalf, typically into a mix of funds.

It’s generally aimed at medium to long-term investors (more than 5 years) and can be useful for estate planning or for higher-rate taxpayers looking for an alternative to ISAs or GIAs.

Tax is a bit more complex here, the bond itself is subject to tax, but you won't pay further income or capital gains tax unless you withdraw more than your ‘5% annual allowance’. This allows some flexibility when managing tax liability on withdrawals.

‍

Understanding Investment Types & Asset Classes

Within these investment accounts, it’s possible to invest in a variety of asset classes, which we’ll cover in more detail in the guide that follows this one. 

Different providers will give you access to different asset classes, and a varying degree of control over how your investments are made. Some will allow you to engage in high risk, active trades, whereas others will offer a few simple investment choices to encourage a passive investing strategy. 

Seccl Custody Limited is the ISA Manager for the Chip Stocks and Shares ISA. Fund management charges apply. ISA limits apply. Invest £20k per tax year. Chip does not provide tax advice or financial advice. Tax treatment depends on individual circumstances and may be subject to change in the future. GIA proceeds are potentially taxable, subject to any annual exemption that may apply. 

‍Workplace Pensions, Self-Invested Personal Pensions, Investment Bonds and Stocks & Shares Lifetime ISAs are not available via the Chip platform.

‍Interest rates reflect the cost of borrowing money. When you take out a loan you are charged interest on the amount borrowed.

AER stands for "Annual Equivalent Rate" and it is a way to express the interest rate on a savings account or other type of deposit account in a way that makes it easy to compare the effective rate of interest you will receive. 

AER takes into account the effect of compound interest and expresses the rate as if interest were paid and compounded once per year. So AER is a standardised way to compare the interest rates across different accounts, and make sure you understand the interest you earn.

Interest rates are also relevant to savings accounts but for this, they are usually referred to as the “yield” or “return” on your deposits. 

‍

Why Do Interest Rates Change?

There are several factors as to how interest rates are determined. This includes the monetary policy of the central bank (such as the Bank of England), the strength of the economy and the overall level of inflation.

1. Inflation: When inflation is high, it means the purchasing power of money is decreasing and requires more money to purchase goods and services. Raised interest rates make borrowing more expensive which can slow economic growth whilst reducing inflation.
2. Economy: If the economy is struggling and unemployment is high, central banks, such as the Bank of England, could lower interest rates to encourage borrowing and spending. This can help stimulate economic growth.
3. Monetary Policy: Central banks can use a variety of tools to control the money supply and interest rates in the economy. For example, buying or selling government bonds on the open market can influence interest rates and the supply of money. Governments can also have an influence on interest rates through policy decisions.

‍

What Types of Interest Rates Are There? 

There are several different types of interest rates which can apply to different types of financial products. The two common types of interest rates are:

1. Fixed Interest Rate: A fixed interest rate is when an interest rate remains the same over the life of a fixed term or other financial product. For example, a fixed-notice account means it’ll have the same interest rate for the entire fixed term period. 
2. Variable interest Rate: A variable interest rate is when an interest rate can change over time. This is typically based on an underlying index such as the prime rate, market conditions and is dictated by the bank's strategy and control.

There are different types of interest rates that can impact the overall cost of a loan. It’s important to understand the type of interest rate that applies to any given product before making a financial decision.

‍

How Do Interest Rates Affect My Savings?

Interest rates can affect and benefit your savings account by increasing the amount of money you earn on your deposits. Often, when you deposit money into a savings account, the bank pays you interest on that money. This is expressed as an annual percentage of the total deposit. 

When interest rates are high, it means you can earn a higher return on your savings. This can help your money grow faster. High-interest rates can also help you protect the value of your cash against inflation. This means that your savings lose less value over time. 

Interest rates can vary widely between different types of savings accounts and between banks. It’s always important to do your research into savings accounts and banks to ensure you’re getting  a competitive interest rate and that your money is protected by initiatives such as the FSCS (Financial Services Compensation Scheme).

Recognising savings burnout

Savings burnout is more than just feeling the pinch before payday. It can show up as:

• Apathy towards financial goals;
• Increased impulse spending;
• Neglecting your budget;
• Resentment towards your savings efforts.

If any of this sounds familiar, take a step back and review your financial patterns.

Have you been spending more or saving less? You might be experiencing savings burnout without realising it. Checking your actions holistically can help you pinpoint where things changed.

‍

Reframe your mindset

Rather than seeing saving as a sacrifice, reframe it as an investment in your future self. Every pound saved isn’t depriving you—it’s empowering your future.

For instance, for every £100 you save, use a savings calculator to estimate what it could be worth in 10 years with compound interest. Seeing your contributions grow over time can motivate you to keep going.

‍

Celebrate small wins

It's easy to overlook minor successes when chasing big financial goals. Did you resist an impulse buy? Or save that work bonus instead of spending it? Celebrate those achievements!

However, try to choose rewards that won’t drain your budget, like an afternoon to yourself, extra reading time, or skipping a social event you’ve been dreading. Sometimes, self-care and small indulgences are the perfect reward.

‍

Embrace flexibility

A rigid savings plan can lead to burnout. Build flexibility into your budget to allow for the occasional indulgence.

Setting aside 'fun money' can help you balance saving for the future with living today. It’s essential to enjoy the journey, not just focus on the destination.

‍

Diversify your savings strategy

Feeling stuck? Shaking up your savings approach might be what you need. Consider:

• Exploring different types of savings accounts;
• Checking out tax-efficient options like ISAs;
• Looking into ethical investment opportunities.

A diversified approach can keep you engaged while potentially increasing your returns.

‍

Practise financial self-care

Just as you would take rest days in your fitness routine, incorporate financial self-care into your money management. This could mean:

• Taking a day off from checking your accounts;
• Treating yourself within your budget;
• Spending time on low-cost hobbies.

Financial wellness is a key part of your overall well-being, so make time for it.

‍

Support and inspiration

If possible, connect with people who share your financial goals. Join online communities, listen to finance podcasts, or attend local savings clubs. Building a supportive network can help keep you motivated and accountable.

The Chip community is a great place to start. Engaging with like-minded individuals can rekindle your drive to save.

‍

Reassess, realign

If savings burnout persists, reassess your goals. Are they still relevant to your current life? Don’t hesitate to adjust your targets as needed. Regularly using the goal-setting feature in the Chip app can help you keep things aligned with your values and life circumstances.

‍

The path forward

Overcoming savings burnout requires a balance between discipline and flexibility. It’s about moving forward steadily, not racing to the finish line. With the right mindset and tools, you can reignite your savings spark and get back on track.

Remember, Chip is more than just a savings tool – it’s your partner in building a brighter financial future.

With each small step you take, you’re moving closer to your goals. Every great financial journey has challenges, but it’s how you overcome them that counts.

‍

The Bank of England base rate, often referred to as the "Bank Rate," is a critical component of the UK’s financial system, influencing everything from savings and mortgage rates to the broader economy.

Understanding when and why the base rate changes can help you make informed financial decisions.

‍

Why the base rate is important

The Bank of England base rate is the interest rate at which commercial banks borrow from the central bank. It serves as a benchmark for interest rates across the economy, affecting lending and borrowing costs for consumers and businesses alike.

When the base rate changes, it can influence everything from mortgage repayments to savings interest rates and even the cost of borrowing for businesses.

‍

Factors that influence base rate changes

The Monetary Policy Committee (MPC) of the Bank of England, which meets for three and a half days, eight times a year, is responsible for setting the base rate. Several factors influence decisions:

1. Inflation: The primary goal of the MPC is to maintain price stability by targeting an inflation rate of 2%. If inflation is predicted to rise above this target, the MPC may increase the base rate to cool economic activity. Conversely, if inflation is below target, the base rate may be reduced to stimulate spending.
   
2. Economic growth: The MPC also considers overall economic health. Indicators such as GDP growth, employment rates, and consumer spending can influence decisions. During periods of economic slowdown, a lower base rate can help encourage borrowing and investment.
   
3. Global economic conditions: External economic factors, such as global financial markets and international trade dynamics, also play a role. Events like financial crises or significant changes in major economies can impact the UK’s economic outlook, prompting a reassessment of the base rate.
   
4. Financial stability: Ensuring the stability of the financial system is another critical consideration. The MPC evaluates risks to the banking sector and broader financial system, adjusting the base rate to mitigate potential threats.

‍

Who is in the MPC?

The MPC is composed of nine members. These members include the Governor of the Bank of England, three Deputy Governors, the Chief Economist, and four external members appointed by the Chancellor of the Exchequer.

The composition has been designed to ensure a balance of internal Bank of England officials and independent external experts.

‍

When does the base rate change?

The Bank of England’s MPC meets eight times a year to review the base rate. These meetings are typically scheduled every six weeks, although extraordinary meetings can be called if economic conditions warrant immediate action.

The dates of these meetings are published in advance, allowing markets and the public to anticipate potential rate changes.

For the most accurate and up-to-date information, the Bank of England’s website provides a schedule of upcoming MPC meetings and announcements.

‍

The impact of base rate changes

Changes to the base rate can have wide-reaching effects on various aspects of the economy and personal finance. These will affect people in different ways. A base rate change will always be greeted positively by some people and negatively by others. Key areas liable to be impacted by changes are:

1. Mortgages: Many mortgage rates are linked to the base rate. A rise in the base rate often leads to higher mortgage payments for those on variable or tracker rates. Fixed-rate mortgages remain unaffected until the end of the term, at which point a new rate will be set. This rate will be based on the prevailing base rate.
   
2. Savings: When the base rate increases, banks and building societies often raise interest rates on savings accounts, offering better returns to savers. Conversely, a reduction in the base rate can lead to lower savings interest rates.
   
3. Loans and credit cards: Borrowing costs for personal loans and credit cards are also influenced by the base rate. Higher base rates can result in more expensive borrowing, while lower rates make loans and credit cheaper.
   
4. Business loans: For businesses, changes in the base rate affect the cost of borrowing. Higher rates can increase operating costs, potentially impacting investment decisions and expansion plans.
   
5. Currency exchange rates: The base rate can also influence the strength of the pound. Higher rates tend to attract foreign investment, boosting the currency’s value, while lower rates can have the opposite effect.

‍

Preparing for base rate changes

Given the significant impact of base rate changes, it’s important to stay informed and prepared. Here are some steps you can take:

1. Monitor MPC meetings: Keep track of the MPC’s meeting schedule and be aware of the dates when decisions will be announced. Reputable financial news outlets will often provide analysis and predictions ahead of (and in the wake of) these meetings.
   
2. Review financial products: Regularly review your financial products, such as mortgages, savings accounts, and loans. Consider how base rate changes might impact your payments or returns, and explore options for fixed-rate products if you prefer stability.
3. Seek professional advice: If you’re unsure how potential base rate changes might impact your finances, consider consulting with a financial advisor. They can provide personalised advice based on your specific circumstances.
   
4. Stay flexible (where possible): Be prepared to adjust your financial plans in response to base rate changes. This might include refinancing a mortgage, switching savings accounts, or adjusting your investment strategy. It is generally recommended to speak to an expert prior to making any major financial decisions.

‍

Conclusion

The Bank of England base rate plays a crucial role in the UK economy, influencing a wide range of financial products and decisions.

By understanding when and why the base rate changes, you can better prepare for its impacts on your personal and business finances.

Stay informed, review your financial products regularly, and seek professional advice to navigate the complexities of interest rate fluctuations effectively.

We all know that saving is important, yet for many, actually doing it can feel like an uphill battle. Why is it so hard to set aside money, even when we know it’s in our best interest?

To get to the bottom of this oft-experienced conundrum, let’s explore the psychological reasons behind savings procrastination and look at evidence-backed ways to conquer it.

‍

Present bias: The now vs. later dilemma

At the root of savings procrastination lies a cognitive quirk known as present bias, which causes us to prioritise immediate rewards over long-term gains, even when the latter are objectively better.

This is why many of us would rather have £100 today than £120 in a year, despite the fact that waiting would yield more value. Present bias tricks our brain into opting for immediate spending, undermining our ability to save for future goals.

A classic illustration of present bias is the famous Stanford marshmallow test. Conducted in the 1970s by psychologist Walter Mischel, the experiment offered children a choice: eat one marshmallow now, or wait 15 minutes and receive two marshmallows instead.

The test revealed a lot about self-control and delayed gratification. Some children managed to wait for the second marshmallow, while others quickly gave in to the temptation.

Interestingly, follow-up studies found that the children who were able to wait for the second marshmallow tended to achieve better life outcomes, including higher academic achievement and greater financial success.

This experiment encapsulates how present bias works in real life. When faced with the choice of spending or saving, some of us act like the children who opted for immediate gratification, preferring money now, even though we know we could benefit more by saving for the future.

Understanding this bias can help us recognise why we struggle with saving and give us the insight we need to build better financial habits.

‍

Loss aversion

It is natural for us to experience what’s known as loss aversion, where the pain of losing money feels stronger than the pleasure of gaining it. When we save, it may feel like we’re sacrificing our current spending power, even though we’re setting ourselves up for future financial security.

‍

Choice overload

With so many savings options out there—ISAs, pensions, investments—it’s easy to become overwhelmed and opt, instead, for doing nothing at all. Choice overload can create decision paralysis, stopping us from taking any meaningful action toward saving.

‍

Optimism bias

Another common mental block is optimism bias. This is where we overestimate how well things are liable to go in the future.

We might assume that, as soon as we get that promised raise, it’ll be the perfect time to start saving, or to think that a future version of yourself will be better placed to handle difficult financial decisions, which can lead to continuous delays.

‍

Evidence-based strategies to combat saving apathy

Understanding the psychology behind why we put off saving is only half the battle. To make the most of your money, it’s key to apply practical strategies that will break through these barriers.

1. Embrace automation

One of the most effective ways to beat procrastination is to remove the element of choice altogether. Set up automatic transfers to move a portion of your income to a savings account on payday.

2. Visualise your future self

Research shows that vividly imagining your future self can help counteract present bias. By creating a mental connection with your future self, you’re more likely to make decisions that benefit you in the long run.

3. Start small

Large, long-term financial goals can feel overwhelming. To combat this, use the goal-gradient hypothesis, which shows that people are more motivated when they see progress toward their goal. Start with small, achievable savings targets to build momentum.

4. Use mental accounting

Take advantage of mental accounting, a tendency to mentally separate funds for specific purposes. By creating separate savings accounts or "pots" for different goals, you reduce the likelihood of dipping into your savings.

5. Make saving tangible

Using visual feedback can make the abstract concept of saving feel more real. Tracking your savings progress visually can provide immediate rewards and encourage consistent contributions.

7. Simplify your choices

If you’re overwhelmed by myriad savings options, streamline your choices to reduce cognitive overload. Start with just one or two savings accounts or products to get the ball rolling. You can diversify later as your savings grow.

‍

Building a path to financial wellness

The key to overcoming savings procrastination is to focus on progress, not perfection.

Each small step you take toward saving, no matter how small, is a win. Celebrate your achievements along the way and be patient with yourself as you form new habits.

By understanding the psychological forces behind procrastination and using these strategies, you’re not just building better savings habits, you’re changing your relationship with money.

This shift in mindset can make a world of difference in your financial future.

What is pension drawdown? 

Pension drawdown is the overarching term for taking income directly from your invested pension pot, and since the 2015 Pension Freedoms, almost all new drawdown arrangements are set up as flexi‑access drawdown (the modern, unrestricted version of drawdown).

Introduced as part of those reforms, alongside the ability to take up to 25% of your pot tax‑free, it allows retirees to choose how much income they withdraw each year while keeping the remainder invested.

Pension drawdown is a method of taking a retirement income from your pension pot as you need it, whilst keeping the rest invested with the aim of generating further growth.

Instead of receiving a fixed income for life, you decide how much income to withdraw and when. This differs from purchasing an ‘annuity’, where you hand over your pot in exchange for a guaranteed income (we’ll cover this option in another guide).

‍

How does flexi-access drawdown work? 

Flexible pension drawdown works by moving your pension funds into a specific ‘drawdown’ account that allows for variable withdrawals.

1. Move your funds: Not every pension scheme offers drawdown directly. Many older workplace schemes are designed only to build up savings, not to pay it out flexibly in retirement. If your current provider does not support flexi-access drawdown, you will need to transfer your pension to a modern provider or a Self-Invested Personal Pension (SIPP) that does. 
2. Take your tax-free cash: When you move money into drawdown, you are typically entitled to take 25% of the pot as a tax-free cash lump sum, up to a maximum of £268,275. This cap was introduced when the Lifetime Allowance was abolished in April 2024. For most people with pension pots below around £1.07 million, the 25% figure will still apply in practice. You can take this all at once or in stages. . For example, if you have a £100,000 pot, you can take £25,000 immediately tax-free. The remaining £75,000 stays in the drawdown account.
3. Invest the rest: The remaining 75% of your pot stays invested in the stock market, bonds, or other multi-asset portfolios. The goal is to achieve investment growth that helps replenish the money you withdraw, ideally outpacing inflation.‍
4. Set your income: You then choose how to withdraw from the invested 75%. You can set up a regular monthly payment (like a salary), take occasional lump sums for holidays or big purchases, or take nothing at all for certain years. Crucially, every penny you withdraw from this part of the pot is treated as taxable income whenever you take it.

‍

Investment risks and sustainability

The defining feature of drawdown is that your income is not guaranteed. It is linked directly to the performance of your underlying investments, which means your pension pot can rise or fall in value.

• The sequence of returns risk: This is the danger of a poor market performance occurring just as you start your retirement. For example, iIf your portfolio drops by 20% in year one, and you continue to withdraw your planned income, you are selling assets at lower prices. This depletes your capital much faster than expected and makes it difficult for the pot to recover even if markets bounce back later.‍
• Risk of withdrawing too much: Because there are no guarantees, you need to choose a sustainable withdrawal rate. Historically, many people referred to the ‘4% rule’ (withdrawing 4% of your pot annually), but more cautious approaches such as a 3% withdrawal rate may offer an extra layer of protection against running out of money.

‍

Is a drawdown pension a good idea?  

Drawdown can be a good idea for those who want control over their pension pot and are comfortable with some investment risk during retirement, but it isn’t the right choice for everyone.

Pros:

• Income flexibility allows you to reduce withdrawals when you can rely on other income to cover your expenses, or take more when your expenses are high or unforeseen. 
• Potential for growth on your remaining invested pot, giving you the potential to keep up with or even outpace inflation. 
• Death benefits, any money left in your pot when you die can usually be passed on to beneficiaries. Learn more.

Cons:

• Your income is not guaranteed, as the invested value of your pot can move up as well as down depending on investment performance.
• There is a risk that your pot could run out during your lifetime, unlike an annuity, which can provide a guaranteed income for life.

‍

Do you need financial advice? 

Deciding how to withdraw your pension is one of the most complex financial decisions we make in our lives. Because of the risk involved, taking regulated financial advice can be a good idea if you’re feeling unsure about your options.

An advisor can help you stress-test your retirement plan by modelling different scenarios and seeing how this would affect your pot. They can also help you navigate the tax  considerations involved in taking income, helping you avoid unexpected bills and ensuring you don’t accidentally breach your allowances. 

You can also take advantage of MoneyHelper’s free, government-backed Pension Wise service, which helps explain your options for withdrawing money from your defined contribution pension.

‍

Drawdown death benefits 

One of the benefits of pension drawdown is that any remaining pension savings can usually be passed to your beneficiaries when you die.

• If you die before age 75, any money can typically be inherited by your beneficiaries tax-free. They can take it as a lump sum or as an income.

• If you die after age 75, your beneficiaries can still inherit the remaining pot, but they will normally pay Income Tax on any money they withdraw at their own marginal rate.

It is worth noting that the government has announced plans to bring unspent pension pots into your estate for inheritance tax purposes from April 2027. If this change comes into effect, the tax treatment of inherited drawdown pots would change significantly.

‍

Annuities 

The main alternative to flexible drawdown is buying an ‘annuity’. This is where you give all, or part of, your pension pot to an annuity provider to purchase a fixed, guaranteed retirement income. 

Annuities are a much lower risk option than drawdown, as it guarantees an income for a fixed period or the rest of your life. You don’t, however, get the same potential growth benefits you could get from a drawdown pot. Read our annuities guide for further information. 

‍

What is the Prize Savings Account? 

Our Prize Savings Account is an instant access savings account, where instead of earning interest, your cash deposits give you entries into a monthly draw to win tax-free¹ prizes paid directly into your account.

‍

Is it free to enter?

Yes! Entries are completely free of charge, all you need to do to enter is deposit and hold an average balance of at least £100 at the end of the month. 

Note - from 1 December 2025 onwards you will only need to hold a minimum average balance of £10. 

Every £10 of average balance gives you one entry in the monthly draw.

But to be clear; entries don’t cost you anything, and any money that you deposit can be instantly withdrawn whenever you want (but note that you will lose entries in the monthly draw).

‍

Is it a normal instant access savings account?

The Prize Savings Account is an instant access savings account with instant deposits and withdrawals.

It is powered by our partner bank ClearBank, and all deposits are ultimately held by them and covered by the Financial Services Compensation Scheme (FSCS) up to £120,000 (see our ‘how we protect your money’ webpage to learn more about FSCS at Chip). 

The only difference between the Prize Savings Account and any other savings account is that instead of earning interest, you will have a chance to win tax-free¹ prizes.

‍

How much can I save?

The maximum amount of cash you can save into the Prize Savings Account is £85,000. Any prizes won are paid as ‘bonus’ and are paid directly into your Prize Savings Account, and don’t count towards the £85,000 balance limit. 

It is not possible to deposit more than this amount, or to open multiple accounts in order to do so. Any attempt by an individual to open multiple accounts would result in a breach of the Prize Savings Account terms and conditions.

‍

What are the prizes?

All prizes are tax-free¹ sums of ‘bonus money’ we pay directly to your Prize Savings Account.

The prize amounts can change each month and we’ll publish next month’s prizes on this site no later than five calendar days before the start of the next draw. 

We commit to always paying at least one Grand Prize of £10,000 and 250 ‘additional prizes’ of £10. Though, generally we pay much more than this!

‍

What’re the odds of winning?

We can’t be exact with the odds of the next draw, as it depends on how many people enter and how many prizes are awarded. But we can share past odds. Please also note that you can win more than one prize per draw.

The odds of winning per entry (per £10 deposit) in the September 2025 draw were:

• 1 in 623 to win any prize

The average odds of winning per entry (per £10 deposit) in all 2025 draws were:

• 1 in 964 to win any prize

Data is based on January - September 2025.

‍

Are prizes tax free?

All prizes are tax-free sums of ‘bonus money’ we pay directly to your Prize Savings Account.

But note that Chip does not provide tax advice, and tax treatment depends on individual circumstances and may be subject to change in the future.

‍

‍Can I win more than one Prize? 

Yes you can. You can win multiple tax-free prizes in the draw. 

‍

When are the prizes paid?

If you win an ‘additional prize’, it will be added to your Prize Savings Account within five working days after the start of the month (but we aim to do this as close to the 1st of the month as we can). 

If you win the Grand Prize, we will contact you before it is paid (see below).

‍

What happens when you win the Grand Prize?

Grand Prize Winners need to confirm their win before the prize is paid. 

We will contact you by email and call you. You’ll have seen the recordings of these calls on our social media accounts. 

We will also ask you to take part in reasonable publicity, like being interviewed and filmed. We will obtain your express consent before filming and/or sharing any media. 

Winners have 10 working days to respond to us and claim their prize (we reach out by email, push notification and phone, leaving voicemails and even SMS).

If we can’t reach the Grand Prize winner, the prize will be deemed forfeit and the amount will be added to the following month’s prizes (i.e. like a ‘rollover’). 

For example, if a winner wins a Grand Prize of £10,000 in January but does not claim it, the Grand Prize available in February’s draw (for this example, also £10,000) would become the value of both January and February’s Grand Prizes combined (i.e £20,000).

Rest assured, we make every effort to contact the Grand Prize winner and we haven’t had a single Grand Prize unclaimed yet!

‍

How are the prizes awarded?

Prizes are paid as a bonus, not cash, directly into your Prize Savings Account.  

Please note, the prizes do not become cash until your full Prize Savings Account balance is withdrawn back to your current account, or if you transfer your balance to another account in Chip. Also note, when withdrawing prizes to your linked bank account, this can take up to five working days.

Prizes also do not count towards additional entries, unless you withdraw and redeposit. Prizes are not FSCS protected until they are withdrawn and redeposited.

‍

How do you enter?

Each month you will be entered into the prize draw provided you have an average balance of £10 or above in the Prize Savings Account (and have not opted out).

Every full £10 of average balance = one entry. 

The average balance you have on 11:59pm on the last day of the calendar month is what gets counted as your entries.

For example, if you have an average balance of £10 on 11:59pm on the last day of the calendar month you’d get 1 entries each calendar month (unless you opt out).  

If your average balance drops below £10, and remains at that level at the end of the calendar month, you’d have 0 entries in that month’s prize draw (if you choose to opt out of the draw, you’ll have 0 entries, regardless of your balance).

‍

How does average balance work?

Before we get into the detail of how average balance works, the important things to take away are:

• The earlier you deposit in the month the more entries you get.
• In the month after you deposit, every £10 of your balance = one entry in the draw (provided you don’t withdraw).
• Use the calculator to see how many entries you’ll get.

Your average balance is calculated by your daily balance divided by the number of days in the month. 

When are my entries counted?

Your entries will be taken at the end of the calendar month, but the draw will take place in the first week of the following month (no later than five working days after the end of the calendar month). 

‍

Where can I see my entries?

You can see your entries in your app, on the Savings tab under “Prize Savings Account” 

‍

Can I get extra entries?

You can occasionally earn extra entries through promotional offers. You might be able to double your entries, or earn entries for completing actions like referring a friend.

These are one-off promotions and will have their own eligibility and terms and conditions. Extra entries can count above the deposit cap of £85,000 (8,500 entries)

‍

How and when are the winners picked?

The draw will take place within five working days after entries close (the first five working days of the following month). Winners are selected using randomised draw software. 

The Grand Prize winner will be paid within 5 working days of them accepting the prize (see above), and we aim to pay ‘additional prize’ winners within the same timeframe, but it’s normally much quicker.

‍

Can I autosave into this account?

Yes, you can autosave directly into this account (Savings Plans settings can be found on the profile tab) and also deposit one-off amounts at any time by selecting the Prize Savings Account in the Savings tab and tapping ‘deposit’. Saves into this account also count toward your in-app savings goals that you can set up in the ‘Goals’ tab.

‍

Is this gambling or a lottery? Can I lose money?

The Prize Savings Account is not a lottery or gambling and it’s completely free to enter. You can’t lose money. You are depositing money in a FSCS protected account for the chance to win prizes. You can withdraw for free at any time.

‍

Can I open a Prize Saving Account for my child?

Unfortunately not, The Prize Savings Account is only available to the named individual who must be a UK resident over 18 years of age.