Many have been bracing for a sharp drop in interest rates this year, hitting older people who prefer to keep larger sums in safe cash. Only now have they become accustomed to earning five percent or more on their deposits, after receiving next to nothing for more than a decade after the financial crisis.
Instead, 2024 was a great year for savers. Although rates have fallen slightly, they are holding up much better than expected.
Now they’re finally giving savers something they haven’t had for years and years, and it adds real value to their savings.
Today challenger bank Chase Saver pays 5.20 per cent for easy access with a minimum deposit of £1. However, this is inflated by an initial one per cent bonus which expires on January 16, 2024. Oxbury Bank pays 5.02 per cent. There is no bonus on this account, but savers must deposit a minimum of £20,000.
Anna Bowes, founder of Savings Champion, warned that easy access rates such as these vary. “When the prime rate finally comes down, readily available interest rates like these will also come down.”
That could happen sooner rather than later, with markets expecting the BoE to cut rates to five percent at its next meeting on August 1.
Yet today, savers can protect their money against future rate cuts AND secure something that no savings account has offered in a long, long time.
For those who like to lock up their money, 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 giving savers an inflation-pushing return on their money.
That hasn’t happened in donkey’s years. Inflation is usually higher than even the best savings rates, meaning that the purchasing power of deposits in real terms gradually erodes.
This eats up wealth over time – but not today. This is a HUGE change, Bowes said.
“By locking up your money in a fixed-rate savings bond today, you can secure an interest rate that is likely to beat inflation for several years.”
It’s a great moment, she added: “Honestly, it’s a saver’s dream.”
People are beckoning to take advantage of this “stunning” opportunity to increase the value of their cash deposits in real terms. Normally only stocks and shares do, but only if you are willing to put your capital at risk.
You don’t have to do it with cash. So don’t delay and don’t miss this opportunity.
Bowes said fixed-rate bonds are experiencing another “strange phenomenon” right now.
The longer you tie up your money, the less interest you will earn. “Normally you would expect to be rewarded for tying up money for longer.
Again, this is due to the expectation that rates will start to fall. “Providers don’t want to offer interest rates that will be well above the market rate in a year or so.”
As the first rate cut has been repeatedly pushed back, yields on fixed-rate savings bonds have risen slightly. “Although overall they are lower than earlier in the year.
But a word of warning. When looking for a new savings account, check whether you’re likely to pay income tax on the interest. Otherwise, you’d be better off taking a cash Isa.
Under the Personal Savings Allowance (PSA), basic-rate taxpayers can earn £1,000 interest-free each year, while higher-rate taxpayers can get £500.
When savings rates were near zero, few exceeded their PSAs, but today an estimated 2.7 million do.
At the same time, the income tax freeze pushes millions into higher tax brackets, where their PSA shrinks. It disappears completely if they reach the additional rate of 45 percent of the tax bracket.
There is also a danger that Labor could cut or reduce the PSA if it takes power, although the party has not suggested it will.
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 with a minimum deposit of £100. United Trust Bank pays a fixed rate of 4.87 percent over one year, but that rate drops sharply to 4.20 percent over five years.
These are all inflation-busting returns and are also tax-free. Savers should take advantage of today’s dream conditions while they can.