Many are bracing for a sharp drop in interest rates this year, hitting older people who prefer to keep larger amounts in safe havens. They were just getting used to earning five percent or more on their deposits, after receiving virtually nothing for more than a decade after the financial crisis.
Instead, 2024 was bright for savers. Although interest rates have fallen slightly, they have held up much better than expected.
Now they’re finally giving savers something they haven’t had for years, and it increases the value of their savings in real terms.
Today, challenger bank Chase Saver pays 5.20 percent for easy access with a minimum deposit of £1. However, this is inflated by an initial one percent bonus that expires on January 16, 2024. Oxbury Bank pays 5.02 percent. There is no bonus on this account, but savers must deposit a minimum of £20,000.
Anna Bowes, founder of Savings Champion, warned that rates for easy access like this are variable. “When the base rate finally falls, easy interest rates like this will also fall.”
This could happen sooner rather than later as markets expect the BoE to cut rates to five percent at its next meeting on August 1.
Yet savers today can protect their money from future interest rate cuts AND secure something that no savings account has offered for very long.
For those eager to put their money away, Vanquis Bank pays 5.21 percent for 12 months, while United Trust Bank pays 4.60 percent for five years.
With consumer price inflation falling to just two percent in April, accounts like these are finally offering savers an inflation-reducing return on their money.
That hasn’t happened in years. Inflation is typically higher than even the best savings rates, meaning the purchasing power of deposits is gradually declining in real terms.
This costs wealth over time – but not today. This is a HUGE change, Bowes said.
“By locking your money into a fixed-rate savings bond today, you can secure an interest rate that is likely to exceed inflation for years to come.”
This is a shining moment, she added: “Honestly, it’s every saver’s dream.”
Plead people to take advantage of this “mind-blowing” opportunity to increase the value of their cash deposits in real terms. Normally only stocks do that, but only if you are willing to risk your capital.
You don’t have to do that with cash. So don’t wait any longer and miss this opportunity.
Bowes said fixed-rate bonds are also experiencing another “strange phenomenon” at the moment.
The longer you tie up your money, the less interest you get. “Normally, you would expect to be rewarded for holding on to your money longer.”
Once again, this is caused by the expectation that interest rates will fall. “Providers do not want to offer interest rates that will be far above the market price in a year or so.”
Now that the first interest rate cut has been repeatedly postponed, yields on fixed-rate savings bonds have risen slightly. “Although overall they are lower than earlier this year.”
A word of warning though. When looking for a new savings account, check whether you are likely to pay income tax on the interest. Otherwise, you might be better off taking out an Isa with cash.
Under the Personal Savings Allowance (PSA), basic rate taxpayers can earn £1,000 tax-free each year, while higher rate taxpayers can receive £500.
When savings rates were near zero, few exceeded their PSA, but today an estimated 2.7 million people will do so.
At the same time, the income tax freeze pushes millions of people into higher tax brackets, where their PSA shrinks. It disappears completely when they reach the tax bracket of 45 percent of the additional rate.
There is also the danger that Labor could trim or reduce the size of the PSA if it takes power, although the party has not suggested it will do so.
Cash Isa rates tend to pay slightly lower rates than standard savings accounts, although there are exceptions.
The Plum Cash Isa pays a generous 5.17 per cent with easy access on a minimum deposit of £100. United Trust Bank pays a fixed interest rate of 4.87 per cent over one year, but this drops sharply to 4.20 per cent over five years .
These are all inflation-reducing returns, and tax-free to boot. Savers should take advantage of today’s dream conditions while they last.