What will happen to savings rates in 2024 and have they peaked?
SAVERS have benefited from the best interest rates in 2023, after years of meagre returns.
But what's in store in 2024? We asked experts what we can expect and what it means for your nest egg.
It's important to get the best rates on your savings.
For example, if you put £100 into a savings account with a 1% interest rate, you’d have £101 a year later.
But if you saved the same amount with a rate of 5%, then you'd have £105.
The more you have saved, the greater the benefit.
Savings rates have been at historic lows in recent years, since the financial crisis of 2009.
The rates that high street banks offer on savings accounts is usually tied to the Bank of England's base rate, which until December 2021 was just 0.01%.
But a raft of consecutive rate hikes means it now stands at 5.25%.
And although banks are often slower to pass on the hike to savers, than they are with borrowing costs, banks tend to battle it out to offer market-leading interest rates.
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For instance in September 2022, the best rate on the market was 3.61%. But now you can find some accounts offering as high as 8%.
We spoke to three finance experts to find our what 2024 might bring for savers.
What will happen to savings rates in 2024?
Laura Suter, director of personal finance at AJ Bell says that the first half of next year is expected to be a period of "no change" for the Bank of England Base Rate.
However, she adds that during the second half, there is a divide in opinion from what experts expect.
She said: "The reality is that it all depends on what various different bits of economic data show between now and then, including inflation, wage growth and economic growth – and a lot of that is very hard to predict accurately months ahead."
Laura added that if rates remain at current levels there will be some drops in easy-access savings rates, but the bigger impact will be on the fixed-term savings market.
Easy access accounts usually allow unlimited cash withdrawals. However, this perk means they tend to come with lower interest returns.
Fixed savings rates offer some of the highest interest rates. However, if interest rates increase during your term you can't move your money and switch to a better account, or may be charged a fee or lose the interest if you do.
Sarah Coles, financial expert at Hargreaves Lansdown says that we are unlikely to see a ";watershed moment" when savings rates are cut.
Instead, she suggests that we should expect to see them slowly drift south throughout the year.
She added: "Savings rates have peaked. We’ve seen them slowly falling for weeks, as the market digests the fact that we’re unlikely to see any more Bank of England rate rises in the near future.
The finance expert says that 2024 savings rates may start to reflect an expectation that interest rates will fall.
Markets are now predicting that there will be five rate cuts next year starting from March and reaching 4% by December.
But this forecast could prompt banks to move rates lower earlier.
What does this mean for savers?
With the potential rise and fall of interest rates, savers should keep comparing rates against the best deals on the market regularly.
Rachel Springall, finance expert at Moneyfactscompare.co.uk said: "It is worth keeping in mind that savers with closed accounts may not benefit from rate rises, so switching is vital."
To get the highest possible returns on their cash savers might need to rethink how they save in 2024, and how much access they need to their cash.
The good news for savers is that inflation is expected to come down, so there is a chance to earn a real return on their investment.
High inflation eats away at savings in real terms.
Laura advises savers to move if they are not locked into a fixed-rate deal and to start shopping around now.
She added: "While lots of people have shifted their money into fixed-rate accounts to benefit from higher interest rates, there is still a huge £253billion in accounts not paying any interest."
The finance expert also suggests savers think about tax, as higher savings rates mean more people are going to breach their tax-free personal savings allowance.
She said: "Basic-rate taxpayers can earn £1,000 in savings interest a year before paying tax and higher rate taxpayers get a £500 tax-free limit – but once you’ve exceeded that you need to factor in any tax you might owe."
Laura suggests moving your money into an ISA, as this will protect it from tax.
You can save up to £20,000 into an ISA each year, or £4,000 in a Lifetime Isa (LISA), and pay no tax on the interest you earn.
She added: "It means you’ll need to do some sums to work out whether you’re better off accepting a higher interest rate and paying tax on the interest, or a lower rate that’s tax-free."
New ISA rules coming into place midway through the year could well "spur on" more savers to utilise their ISA allowance, Rachel added.
The government recently announced it would be making changes to simplify ISAs and provide more choices for savers.
From April 2024, under the new rules, the government will allow multiple subscriptions to ISAs of the same type.
It will also allow partial transfers of ISA funds in-year between providers from April 2024.
The account opening age is also set to rise for any adult ISAs to 18 from April 2024 - up from 16.
However, it is freezing the ISA annual allowance at £20,000, Junior ISAs at £9,000 a year and Lifetime ISAs at £4,000 a year.
What should savers look to do in the New Year?
Savers who have a specific goal to save towards would be wise to consider opening a regular savings account and easy access account, according to Rachel.
A regular savings account is a good choice to "instill" the savings habit, as many of these accounts require savers to put money away every month.
A regular saving account can generate decent returns but only on the basis that you pay in a set amount each month.
For example, the best rate of any saving account on market at the time of writing is Nationwide's 8% regular saver, but you can only put in up to £200 a month - though you can make up to three withdrawals a year without a penalty.
However, easy-access accounts are more flexible and could be a better option for those who are struggling with the cost of living at the moment.
Rachel said: "Some savers may want a pot they can quickly access in case of a financial emergency."
However, some easy-access accounts do have withdrawal restrictions on them, so consumers must stay within any limits to benefit from the full interest rate on offer.
Rachel said: "A clear winner for savers this year was variable savings rates, such as the returns on offer from easy access and notice accounts."
Notice accounts offer slightly higher rates than easy-access accounts but you'll need to give advance notice to your bank (up to 95 days).
She added that these accounts went from strength to strength as providers moved to both compete on rate and pass on consecutive Bank of England base rate rises.
However, since the average easy access rate peaked in October, and has fallen slightly since, it is possible this rate may fall further before the year ends.
"As with any account, it is essential savers shop around and switch to get the best possible return on their hard-earned cash", Rachel said.
How you can find the best savings rates
If you are trying to find the best savings rate there are websites you can use that can show you the best rates available.
Doing some research on websites such as MoneyFacts and price comparison sites including Compare the Market and Go Compare will quickly show you what's out there.
These websites let you tailor your searches to an account type that suits you.
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According to data supplied by Moneyfacts, the average easy-access savings rate is currently at 3.18% whereas in January 2023 it was at 1.56%.
Whereas the average one-year fixed bond rate was 3.56% in January and is now 5.14%.