You might have noticed that the Chip Cash ISA, Chip Easy Access Saver and Chip Instant Access Accounts have rates that track the Bank of England base rate.

Here we explain what the base rate is, what tracker rates are and how they work at Chip.

Bank of England (BoE) Base Rate

Often simply referred to as the base rate, is the interest rate at which the BoE lends money to commercial banks.

It serves as a benchmark for all other interest rates in the economy, influencing the rates at which banks offer for their lending and savings products.

How and when the base rate changes

The Monetary Policy Committee (MPC), a group within the Bank of England, sets the base rate based on economic conditions, inflation targets, and other factors.

You can find a timetable of all MPC meeting dates on the BoE website, but these meetings are usually widely reported on in the media, with the results usually shared instantly by the major news outlets, and MPC meeting notes are a matter of public record.

The main aim of changing the base rate is to control inflation. If inflation is rising above the target set by the government, the BoE may raise the base rate to make borrowing more expensive and encourage more saving. But if the economy is slow and inflation is below the target, the base rate may be lowered to encourage borrowing, spending, and investment.

Tracker interest rates in theory

First thing to cover is that there are three main types of interest rates for savings and loans; variable, fixed and tracker.

Variable rates can be changed at any time at a financial institution’s discretion and fixed rates are contractually set for a defined period of time.

Tracker rates are directly linked to the Bank of England base rate at a predefined margin, and are common with mortgages and savings accounts.

For example if a product has a tracker rate that is “BoE base rate minus 1%”, it’ll always be 1% under whatever the base rate is.

So, if the base rate is 5%, the tracker rate will be 4%. But if the base rate increases to 5.5%, the tracker rate will pay 4.5%, and should the base rate reduce to 4.5% the tracker rate will pay 3.5%.

However, it is worth noting that a tracker rate can also be a variable rate, as they are at Chip (see more on that works below).

A rate that moves with the Bank of England

One advantage of tracker rates is that your rate will reflect wider market conditions, and you can effortlessly ensure that you're getting a competitive rate.

This is because, as explained above, the BoE base rate influences all other rates in the UK and when the base rate moves it’s likely other variable rates will too.

Tracker rates at Chip

The Chip Cash ISA, the Chip Easy Access Saver and the Chip Instant Access Accounts have tracker rates.

The rates on these accounts will change on the same day that the BoE base rate moves.

Here’s a quick summary of how they work, and how they could change with different BoE base rates.

The Chip Cash ISA variable tracker rate

• Gross rate rate tracks the BoE base rate minus 0.26%.
• The current base rate is 5.00%, this means;
• The gross rate on the Chip Cash ISA is 4.74%.
• This gives you 4.84% AER
• New customers joining between 16 and 22 September 2024 can earn 5.12% AER with a 12 month 0.28% boost (terms apply, see more below)

^{*Terms and eligibility criteria apply.}

The Chip Instant Access Account variable tracker rate

• Gross rate rate tracks the BoE base rate minus 1.06%.
• The current base rate is 5.00%, this means;
• The gross rate on the Chip Cash ISA is 3.94%
• This gives you 4.01% AER (standard rate)

^{**Terms and eligibility criteria apply.}

The Chip Easy Access Saver variable tracker rate

• Gross rate rate tracks the BoE base rate minus 1.00%.
• The current base rate is 5.00%, this means;
• The gross rate on the Chip Easy Access Saver is 4.00%
• This gives you 4.07% AER underlying rate
• A 0.93% AER¹ rate boost is applied for 12 months²
• This gives you a headline 5.00% AER

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Note that this account also has a reduced rate, where if you exceed 3 withdrawals in a 12-month period, your interest rate will be reduced by a margin of 1.10% AER, currently giving you a 2.97% AER (variable tracker) for the remainder of those 12 months.

¹The 0.93% AER boost applies to customers who oppen the Easy Access Saver after 19 September 2024, customers who opened the account before that date have a 0.77% boost for 12 months, see the tables above for more detail.

²These 12 months begins from the day you open your account, unless you opened your account before 6 September 2024 (i.e. the first day of the rate boost offer), then your 12 months will begin from 6 September 2024.

How rate boosts work with tracker rates

If you are earning a boosted rate, e.g. any of;

• an additional 0.77% on your Easy Access Saver AER for up to 365 days from the day you open the account, or 6 September 2024 if you opened the account before that date(terms apply), or;
• an additional 0.11% on your Cash ISA AER for up to 365 days from our new customer promotion between 26 and 31 July 2024 (terms apply), or;
• an additional 0.17% on your Cash ISA AER for up to 365 days from our new customer promotion between 10 and 15 September 2024 (terms apply), or;
• an additional 0.28% on your Cash ISA AER for up to 365 days from our new customer promotion between 16 and 22 September 2024 (terms apply), or;
• an additional 0.26% on your Chip Instant Access Account for 90 days from our referral offer (terms apply);

Your boosted rate is applied on top of the underlying rate for the duration of the rate boost, regardless of what happens to the underlying tracker rate.

However, it's important to note your underlying rate as a tracker rate will still move in line with the BoE base rate.

BoE rate drop example with a 0.11% boosted rate on the Chip Cash ISA;

• Should the base rate drop from 5.00% to 4.75%;
• the underlying gross rate on the Chip Cash ISA would drop from 4.74% to 4.49%, taking the AER to 4.58%;
• but if you have a 0.11% boost applied, your AER would be 4.69%.

How variable tracker rates work at Chip

With a variable tracker rate we reserve the right to change the margin that our accounts' rates track the Bank of England base rate by.

If we change the margin to effectively lower a rate (i.e. make the margin bigger), we will give you at least 14 days' notice.

If we change the margin to effectively raise a rate we will put that into effect immediately.

Gross rate vs AER

AER is the rate of interest you earn on any balance above £0. It stands for Annual Equivalent Rate and shows the interest rate for a year, and reflects compounding (earning interest on interest), taking into account any interest payments made to you during the year.

With a 4.84% AER interest rate, if you put in £1,000 on your first day, you'd earn £48.40 in interest over the year. If nothing changes (including the interest rate), you'd have £1,048.40 at the end of the year.

AER enables you to compare the interest rates on accounts from different banks and building societies where interest may be calculated or paid at different frequencies.

Gross interest is the rate you’ll earn before compounding is reflected. UK bank interest is paid gross. For example if AER is 4.84%, the gross interest rate is 4.74%.

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