Many were bracing themselves for sharp drop in interest rates this year, hitting older people who prefer to keep larger sums in safe haven cash. They had only just got used to earning five percent or more on their deposits, after getting almost nothing for more than a decade after the financial crisis.
Instead, 2024 has been brilliant for savers. Although rates have slipped slightly, they have held up much better than expected.
Now they are finally giving savers something they haven’t had for years and years, and it’s turbo-charging the value of their savings in real terms.
Today, challenger bank Chase Saver pays 5.20 percent on 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’s no bonus on this account but savers must deposit a minimum £20,000.
Anna Bowes, founder of Savings Champion, warned that easy access rates like these are variable. “When the base rate does finally fall, easy access interest rates like these will come down too.”
This 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 from future rate cuts AND secure something no savings account has offered for a long, long time.
For those happy to lock 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 giving savers an inflation-busting return on their money.
That hasn’t happened for donkey’s years. Inflation is typically higher than even the best savings rates, which means spending power of deposits gradually erodes in real terms.
This eats 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 outpace inflation for several years.”
This is a brilliant moment, she added: “Frankly, it’s a saver’s dream.”
Bowes people to take advantage of this “stunning” opportunity to increase the value of their cash deposits in real terms. Normally, only stocks and shares do that, but only if you are willing to put your capital at risk.
You don’t have to do that with cash. So don’t hang around and miss out on this opportunity.
Bowes said fixed-rate bonds are also experiencing another “strange phenomenon” right now.
The longer you tie up your cash, the less interest you get. “Normally you’d expect to be rewarded for tying up your cash for longer.”
Again, this has been caused by expectations that rates are going to start falling. “Providers don’t want to offer interest rates that will be far above the market price in a year or so.”
As the first rate cut has been repeatedly pushed back, returns on fixed-rate savings bonds have picked up slightly. “Although overall, they are lower than earlier in the year.”
A word of warning, though. When searching 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 a cash Isa instead.
Under the personal savings allowance (PSA), basic rate taxpayers can earn £1,000 of interest free of tax each year, while higher rate taxpayers can take £500.
When savings rates were almost at zero few exceeded their PSA, but today an estimated 2.7 million will do so.
At the same time, the income tax freeze is pushing millions into higher tax bands, where their PSA shrinks. It disappears altogether if they hit the additional rate 45 percent tax band.
There is also the danger that the Labour could cut or reduce the PSA if it takes power, although the party hasn’t suggested it will do this.
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 percent with easy access on a minimum £100 deposit. United Trust Bank pays a fixed rate of 4.87 percent over one year but this falls sharply to 4.20 percent over five.
These are all inflation-busting returns, and tax-free, too. Savers should take advantage of today’s dream conditions while they last.