High street banking giant NatWest has begun contacting its customers with an unwelcome update, confirming it is cutting the interest rates on a number of its savings accounts.
Rate Reduction Details and Effective Date
In emails sent to account holders, the bank stated it is reducing some of its interest rates, with the change coming into effect from 19 January 2026. The communication directly links the decision to the recent monetary policy shift, noting: "You may have heard the news that the Bank of England has decided to reduce the base rate."
NatWest explained that it had been reviewing its own offerings in the context of the wider market, stating it had been "looking at our rates too, as well as what’s on offer from other savings providers right now." This comparative analysis led to the decision to implement the reductions.
How Interest is Calculated and Paid
For affected customers, interest will continue to be calculated on a daily basis. It will be paid into accounts on the first business day of each month, with funds becoming visible and accessible the following day.
The bank also took the opportunity to clarify key financial terms for savers:
- Annual Equivalent Rate (AER): This illustrates the interest rate if interest were paid and compounded once annually, allowing for easier comparison between different accounts.
- Compound Interest: This is interest earned on interest that has already been paid into the account.
- Gross Interest: This refers to the interest rate paid on savings without any compounding applied.
Tax Implications and the Economic Context
NatWest confirmed it pays all savings interest without deducting tax. The tax liability falls to the saver, depending on their account type and personal allowance.
Interest earned in ISAs remains free from UK tax. For non-ISA accounts, whether tax is due depends on an individual's Personal Savings Allowance. The bank added the caveat that "the tax treatment may be subject to change in the future."
This news for savers arrives amidst a closely watched economic landscape. The latest official inflation figures for December are due for release on 21 January, following a fall to 3.2% the previous month. With the Labour Party government having pledged to address the cost of living, monthly reports from the Office for National Statistics on price movements are under particular scrutiny.
