21st December 2015
This year we have seen new brands enter the savings market and Government proposals to encourage people to save, either towards their first home, or to secure a higher return of interest during retirement. Rachel Springall, finance expert at Moneyfacts.co.uk looks back at the savings market during 2015…
This year’s savings market continued to feel the effects of the Funding for Lending Scheme, which ultimately meant that providers lacked the appetite to compete for savers’ cash.
But the year wasn’t all doom and gloom – the Government’s decision to introduce Pensioner Bonds and Help to Buy ISAs and, from April 2016, reduce tax on savings interest tax, meant that savers enjoyed some good news during 2015.
The clear winners for ‘best rate’ were the lucrative NS&I 65+ Guaranteed Growth Bonds, or Pensioner Bonds, which paid annual rates of 2.80% and 4.00% for one and three years respectively. However, the winners for younger savers came in the form of challenger banks, which dominated the Best Buy tables throughout the year.
“Indeed, a warm welcome was extended to these newcomers as they increased competition in the market and gave savers eye-catching rates. Of particular note was the entrance of RCI Bank UK and its easy access account, which has held a market-leading position since the summer by paying a highly attractive rate of 1.65% yearly.
The bar was also raised by challengers in the fixed rate market, with the average top-five deals jumping from 1.78% yearly in January to 2.10% today.
It’s hoped that now the US Federal Reserve has raised interest rates the Bank of England will soon follow suit. However, although expectations are high, we just don’t know exactly when it will happen and by how much it will increase.
Even when it does go up, there’s the possibility that it won’t greatly influence savings rates – the link between the two has been severed for many years, so the full force of a rate rise may not be passed onto savers. Nevertheless, it could still result in some positive changes in the savings market.
If savers want a new account, it may be worth thinking about base rate tracker bonds as these deals guarantee to pay a certain rate of interest above base rate, which will be ideal when rates rise. But if savers want to invest in a longer-term fixed deal, they would be wise to check the withdrawal and access restrictions.
Some accounts allow savers to access their money ahead of maturity subject to a penalty, which can vary considerably, while others allow no access at all. Checking whether an account has this flexibility will be a great safeguard in case savers want to move to a better deal when rates rise.
Looking towards 2016, savers earning little interest or those in possession of a modest savings pot will get a massive boost from 6 April. Interest of up to £1,000 will become tax-free for basic rate taxpayers (or £500 for higher rate taxpayers), and while this won’t improve interest rates, it’s probably the best news savers have heard all year.