UK inflation unexpectedly jumped to 3% in the 12 months to January 2025, marking a ten-month high and catching many analysts off guard. The rising cost of living is up from 2.5% in December and above analyst’s forecasts of 2.8%.  

The increase has raised fresh concerns about how long the Bank of England (BoE) will need to keep interest rates higher, meaning potentially the pain will be prolonged for borrowers – but could signal better news for savers  

The rise in inflation has been driven by several key factors. Airfares, which typically drop sharply after the holiday season, didn't fall as much as expected, keeping travel costs higher. On top of that, the introduction of VAT on private school fees has pushed up tuition costs, adding to the pressure. Food and non-alcoholic drink prices have also edged up, squeezing household budgets even further. Meanwhile, core inflation, which strips out volatile items like food and energy, has also climbed to 3.7%, and services inflation is now running at 5%. All of this suggests that inflation is proving more stubborn than the BoE might have hoped.

This latest inflation surprise makes the BoE’s monetary policy strategy more complicated. The Bank had been moving toward cutting interest rates this year, particularly given the weak economic growth seen in recent months. But with inflation coming in higher than expected, policymakers may have to hold off on rate cuts for longer to ensure inflation doesn’t start climbing again. Some experts still believe rate cuts are on the way, but this inflation spike could slow things down and force the Bank to take a more cautious approach.

Whilst bad news for borrowers, for cash savers this uncertainty around interest rates has some important implications. If the BoE keeps rates higher for longer, that could be good news for those with savings as banks and building societies may also be slower to cut rates – particularly on fixed term accounts. However, inflation at 3% means that unless you’re earning at least that much interest on your savings, the real value of your money is being eroded over time.

For example, if you have £10,000 in the Lloyds Easy Saver account which is paying just 1.10% AER on balances of between £1 and £25k, after a year the real value of your money would have fallen to £9,816, assuming inflation were to remain at 3%. If you were to move that £10,000 to an account earning 4%, your cash would have actually increased in value, even after the effect of inflation, to £10,097 in real terms.

Check if your savings are keeping ahead of inflation with our inflation calculator below:

Now more than ever, it’s important to make sure your money is working as hard as possible. Shopping around for the best interest rates is key, as banks are still offering a mix of competitive and disappointing deals. Fixed-rate savings accounts might be worth considering if you want to lock in a good rate before any potential cuts in the future. Meanwhile, cash ISAs remain a great way to shield your savings from tax, helping you to maximise your returns.

With inflation still proving unpredictable and interest rates in a state of flux, keeping an eye on the financial landscape and the interest rates you are earning on your savings is essential. By staying informed and being proactive with your savings, you can make the most of the current situation and ensure your money is working for you.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice.

The accounts and rates mentioned in this article are accurate and correct as of 20/02/2025.

As expected, the recent news from the Bank of England has delivered a blow to savers, as the base rate was cut to 4.50%, from 4.75%. 

Following this news we would expect to see cuts to both the savings accounts currently available, but also existing variable rate savings products.

However, this could also serve as a timely opportunity for savers—a reminder to review and optimise their savings before rates decline further.

Analysis by Yorkshire Building Society and data consultancy CACI found that nearly £400 billion is languishing in savings and current accounts earning 1% or less! Savers who are willing to shop around could easily boost returns and secure rates of over 4%, even if they need to retain easy access to their money.

On a balance of £10,000 that means earning in excess of £400 instead of nothing! It’s effectively free money.

For those who can afford to lock up some of their funds, there are still highly competitive inflation-beating fixed-term savings accounts available, which could protect against further rate cuts.

While inflation currently stands a little above the Bank of England’s 2% target, it’s expected to rise slightly further before settling back to around 2% by the end of the year. The good news is that many top savings rates are paying well above inflation at its current level — even after tax — giving savers a chance to protect and grow their money in real terms.

So, locking some cash away into a longer-term fixed account could be a prudent strategy.

If inflation falls back to 2% as projected, savers will be pleased to have locked into rates that comfortably outpace the rising cost of living, for longer. But it’s crucial to ensure you won’t need access to these funds before the fixed term bond matures, as early withdrawals aren’t allowed.

And don’t forget fixed term cash ISAs – which do allow early access, although with a hefty penalty. With tax free interest, the returns are likely to be better than from the bond equivalents.

Although the headline rates on bonds look as though they will provide more, they may not if you pay tax on your savings. For example, if you were to deduct basic rate tax from the top 1-year bond paying 4.66%, the net rate is 3.73%. In the meantime, the top 1-year fixed rate cash ISA is paying 4.45% tax free. So, on £20,000 you would take home £746 from the bond, but £890 from the ISA!  

That’s why for many the cash ISA allowance is not to be disregarded.

The bottom line is that with rates still attractive, now is the perfect time for savers to take control, avoid dormant cash traps, and maximise returns and tax-efficiency while they can.

Take a look at our whole of market, independent and unbiased Best Buy tables.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts and rates mentioned in this article are accurate and correct as at the time of writing.

 

Who deals with the finances in your household? Would your family know where to look should something happen to you?

In the past, having a will would be how your final wishes were granted for the distribution of your assets after death…

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But is it enough in the new digital world?  

As the financial industry transitions towards increasingly using technology, your loved ones are unlikely to unearth your financial information by searching through a physical filing cabinet. Finder, a global fintech, estimates that in the UK alone, 47 million people use some form of online or remote banking – that’s 87%!  In the last decade especially, each of our digital footprints has grown exponentially. With multiple logins, passwords, usernames and accounts held across different websites and portals it’s hard to keep track yourself. The question is, how would your loved ones cope with this should you pass away?

No one can dispute that navigating the death of a loved one is one of life’s biggest challenges. To further complicate things, a recent survey by consumer group Which? has indicated that 76% of members surveyed had left no plan for what to do with their digital assets should they die.

Removing the additional complexity of trying to locate relevant documents to settle your estate can only be of benefit to those you leave behind. Although you can name a ‘digital executor’ in your will, this does not extend to consolidation of your financial affairs into one accessible place. TPO Wealth solves this problem for you.

What is TPO Wealth?

At The Private Office, all our clients have access to a digital filing cabinet, at no additional cost, through our secure online portal TPO Wealth. As with a physical filing cabinet, here documents can be stored safely and securely. By leaving behind instructions for family members on how to access this, the painful process of settling your estate can be expediated and enhanced.

With your consent, your solicitors and accountants can also access information you deem appropriate, such as tax returns. This capability allows for a seamless and effortless experience for you. You can have confidence that your information is safe, whilst allowing trusted contacts to have access to relevant documents.

Our clients use TPO Wealth to file personal financial documents and those they choose to share with professional contacts, such as their:  

• Tax Information 
• Will 
• Invoices 
• Details of professional contacts 
• In case of emergency details 

This can be particularly useful for the self-employed. As of October 2024, the statistical agency Statista estimates that 4,383,000 people in the UK are self-employed. That’s 13.1% of the workforce! Granting your accountant access to secure documents on TPO Wealth could substantially speed up the arduous process of filing tax returns and completing annual accounts.

With all the information neatly stored in one place, the need for time consuming back-and-forth is reduced. You’re free to get on with life’s more important things.

What about if you become incapacitated? 

Beside from the death of a loved one, information may be required, in other instances. Consider critical illness or incapacity. Should something happen to you, access to your TPO Wealth account and those within the remit of your Power of Attorney rights can be granted. Ministry of Justice data from 2024 indicates just how slow the Lasting Power of Attorney process can be – in fact, one application was finally processed in 2024 after a total of 2,777 working days!  

Would you like to take control of your finances?

Beyond secured storage of important files, with TPO Wealth you can track investment performance and the growth of your savings, across various accounts with different providers, all in one place. Using clear graphics, our clients can track the value of their net-worth in real time. Features such as an in-built property value calculator contribute towards overall peace of mind, as you can get a clear picture of the state of your finances, all at your fingertips.

If you’d like to learn more about how TPO Wealth can help to consolidate your financial affairs into one simple, easy-to-use place, we would be happy to help.

So why not get in touch?

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

TPO Wealth is only available to clients of The Private Office.

The Financial Conduct Authority (FCA) does not regulate estate planning or tax advice. 

Multiple City Investment firms are lobbying for Chancellor Rachel Reeves to ‘scale back’ incentives like cash breaks for Cash ISAs in an apparent effort to boost UK financial services and the economy by encouraging savers to ‘invest’ instead of ‘save’.

Companies including Insurance group Phoenix and the London Stock Exchange Group have urged the Chancellor to consider that the £386bn held in Cash ISAs (according to the Bank of England) could deliver higher returns for savers if invested in stocks and shares, while also boosting the declining equities market.

Our recent article on the Lifetime ISA under threat covered the discussion around scrapping the popular Lifetime ISA, something that is also currently being considered by the Government. With the Cash ISA now under threat too, it’s clear that savers may soon be facing turbulent times.

Unsurprisingly, consumers and personal finance experts have pushed back against the proposals. For many savers, these basic and straightforward products form an invaluable part of their personal finances, owing to their lack of volatility and risk compared with investments, including the ability to withdraw money at short notice.

According to 2021/22 data from HM Revenue & Customs (HMRC), roughly 14 million of the UK’s 22 million ISA holders only use Cash ISAs, meaning that the potential changes will significantly impact millions of people who are simply trying to save responsibly.

What is an ISA?

An ISA, or ‘Individual Savings Account’, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.

A Cash ISA is a tax-free savings account that allows people to save cash without incurring income tax on interest. They have become more popular over the past two years due to rising interest rates increasing the competitiveness of savings products.

You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your Cash ISA increases, you get to keep all of it tax-free.

While there is a £20,000 allowance in place for how much you can put in a year, there is not a cap on how much you can accumulate in an ISA over your lifetime.

When choosing a style of investment to suit your needs, you may want to consider how long you plan to invest for and how much you would like your money to grow. It is also important to understand what movement in value you may or may not be happy with because of investment ‘risk’ and any potential losses that may happen if you have to withdraw or ‘sell’ before you are ready. That is why soliciting professional advice can be crucial for understanding how to take those first steps towards a secure financial future.

If you want to find out more, why not give us a call on 0333 323 9065 or book a free non-committal initial consultation with one of our chartered advisers to see how we can help.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate tax and cash flow planning.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

Question: I’ve just filed my self-assessment tax return, and once again I’m paying tax on the interest from my savings. I already max out my ISA allowance each year, but I’m tired of handing over part of my earnings to HMRC. What else can I do to make my savings more tax-efficient? 

Whilst it’s encouraging to see interest rates staying higher than expected, allowing savers to earn more, it does come with a downside: many of us are now paying more tax on our savings.  

The problem is that the tax allowances for savers haven’t changed in years. They simply don’t reflect the fact that interest rates have climbed significantly from the rock-bottom levels we saw for over a decade.  

Take the Personal Savings Allowance (PSA), for example. Introduced in 2016, it allows basic rate taxpayers to earn up to £1,000 in interest on non-ISA savings before paying tax, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not have a PSA. But with rates rising, these thresholds are being breached with much smaller savings pots.

In December 2021, before rates started to increase, the best easy access account was paying 0.75% AER, meaning basic rate taxpayers needed over £133,000 in savings to exceed the PSA. Fast forward to today, and with top easy-access rates at around 4.75%, you’d breach the allowance with just £21,053.  

This is one reason that cash ISAs have become so popular once again. They allow savers to protect their interest from the taxman. However, the annual ISA allowance—currently £20,000—hasn’t increased since 2017.

Another tax-free option for savers is NS&I Premium Bonds, although it’s a different type of savings account. Rather than paying a rate of interest to Premium Bond holders, the interest rate is applied to the amount held in the prize fund, and this funds the monthly prize draw that pays out prizes of between £25 and £1m each month.  

The maximum you can hold in Premium Bonds is £50,000 per person and each £1 purchases one Premium Bond and all the bonds you own are placed into a random monthly prize draw. So, you might win something, or you might win nothing at all! The opportunity to potentially win a bigger prize – and tax-free, means that Premium Bonds have remained very popular even though the interest rate applied to the prize fund, and therefore the amount of cash available for prize money has fallen recently.  

One other allowance that is available for those with a lower income is the starting rate for savings. If you earn less than £17,570 each year in total either from employment, a pension income or rental income you can earn up to £5,000 in savings interest before paying any tax on it.  

It can be quite complex to calculate though and if you earn more than the Personal Allowance - which is currently £12,570 - but less than £17,570, the £5,000 allowance will be reduced by £1 for every £1 you earn over the Personal Allowance.  

For example: 

If your income is less than £12,570 then you have the whole £5,000 starting rate for savers to make use of as well as any remaining Personal Allowance.  

Couples can also benefit by shifting savings between partners. If one earns less than the other, it might make sense to transfer savings to the lower earner to maximize tax-free allowances. However, it’s worth seeking advice from an accountant or financial adviser to ensure you’re making the best decision for your circumstances.

With rates where they are, making the most of tax-free options like ISAs, Premium Bonds, and the starting rate for Savings can help you keep more of your hard-earned interest out of HMRC’s hands. 

If you’ve found this article helpful and have a question relating to savings, investments and general financial planning that you would like to ask, please get in touch.  

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. 

The Financial Conduct Authority (FCA) does not regulate tax advice. 

The accounts and rates mentioned in this article are accurate and correct as at the time of writing.

According to studies by the Financial Conduct Authority, there is a staggering number of people in the UK who do not seek financial advice. This is known as ‘The Advice Gap’ and the number has been put at 39 million.

As an adviser with nearly 40 years in the business it does not necessarily surprise me that there is a great deal of reluctance. Much of the UK’s wealth resides with the Baby Boomers, many of whom can remember what financial advice used to be like in the 70s and 80s. The high levels of professionalism which exist in the industry today, were a thing of the future. Even as late as the mid 80s (when there was no regulation) one insurance company rep (I will desist from mentioning any names) cited that in his first job (in Swansea) one of his best producing ‘advisers’ was a butcher who also sold life insurance policies to his customers, presumably in conjunction with two pounds of mince!

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I have witnessed the complete transformation of this industry. The advisers of today are well educated and highly qualified people with, perhaps most importantly, a high degree of integrity. There is no resemblance to the ‘wild west’ of old but, of course, I have sympathy for any individuals (and there are many) who had a bad experience in the past.

But baby boomers with unhappy memories aside, there is still a great deal of misunderstanding about the value an adviser can add.

In 2022 the Financial Conduct Authority (FCA) conducted research and found that 60% of people with investable assets of £10,000 or more considered that they wouldn’t benefit from financial advice. Another survey by the Financial Services Compensation Scheme (FSCS) indicated that 23% of people felt they didn’t have sufficient wealth to warrant advice and 38% considered advice to be too costly and didn’t represent value for money.

What does value for money represent?

In stark terms this can be viewed as asking the simple question “would I have more money at the end of the day with or without and adviser?” and this is a fair question. Most ‘sceptics’ will simply look at portfolio returns only. Of course, performance returns are very important but in the context of holistic financial advice, it is only one factor.  

This point can be illustrated well by an experience I had with a client I had just acquired back in 2017, who was drawing down money from a pension and paying 40% tax for the privilege. The same client had considerable wealth held outside of the pension and by running cashflow projections, I was able to demonstrate that by directing the income away from the pension and taking it from pension investments, at the end of his life (assumed to be the life expectancy given his age) his estate would be over £300,000 better off. This was simply a tax observation and had nothing to do with the performance of underlying portfolios.

We would all be great investors if we had a crystal ball!

On the subject of portfolios there is also a tendency for would be clients to look at performance in the rear mirror and conclude that self-investing would result in a higher net return. We would all be great investors if we had a crystal ball! The most common trait of the amateur investor, particularly when markets are doing well, is to increase the risk of the portfolio and then, when a market crash comes, all of a sudden, those high performing investments are often the first to fall off a cliff.  

One of the responsibilities of a good adviser is not only to ensure that your money grows well but to ensure than when times are tough, you are sufficiently protected. This is particularly true for retired clients who are in the ‘decumulation’ stage, the point at which you start to draw on your retirement funds. They have worked hard all their lives to build up a pot for retirement and it must be structured in such a way that, if there is a market crash (and there will be one sooner or later), they can continue to draw an income without losing sleep. This can only be done by managing the overall risk and making sure there is sufficient ‘low risk’ investment in the short term to ride the market turmoils.

How to quantify the Value of Financial Advice

In 2019 the International Longevity Centre (ILC) conducted a survey to quantify the value of advice in monetary terms. Over the course of a 10-year period, on average, those who sought advice saw their wealth increase by a whopping £47,706, twenty-four times higher than the average initial fee for the advice.

It is not only the hard benefit of pounds and pence. A Royal London study examined the emotional benefits of having a trusted adviser on board. Peace of mind scored highly. Most people want to enjoy their lives without feeling anxious about their finances. 

A good financial adviser can often provide reassurance, particularly if a projection of finances (using cashflow tools based on cautious assumptions) indicates that life goals can be achieved.

Achieving one’s goals is like climbing a mountain. It takes preparation, equipment, skill and determination to get there, and I don’t know about you, but if I were taking on Everest, I’d rather do it with a good sherpa by my side!

Ultimately, it hinges on trust, and the industry has created a landscape populated by well-equipped advisers who are highly regulated, and duty bound to work in the clients’ best interests. According to the Langcat Report 91% of people considered their advice to be helpful and valuable.  

Some readers will be old enough to remember Red Adair. A colourful character, Red was the only person in the world capable of extinguishing raging fires on oil rigs (an alarmingly regular occurrence back in the 70s). He also charged accordingly and when challenged on his fees he replied “If you think it’s expensive hiring a professional, you should try hiring an amateur!”.

If you would like to learn more about how we can help, why not get in touch and speak to one of our qualified advisers for a free initial consultation.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

Investment returns are not guaranteed, and you may get back less than you originally invested. Past performance is not a guide to future returns.

The Financial Conduct Authority (FCA) does not regulate cash flow planning, estate planning, tax or trust advice.

Nine years after the popular Lifetime ISA (also known as LISA) was created, the Treasury Committee has now launched a review to determine whether it is still ‘fit for purpose’ among other considerations.

Some points being reviewed include whether the deposit limits should be increased, whether the withdrawal penalty should be removed, whether the Lifetime ISA is ‘value for money’ for the Government, and the overall efficacy of the product.

Introduced in the 2016 Budget by former Chancellor George Osborne, the idea behind the Lifetime ISA was to provide an alternative method of tax-free saving for retirement while simultaneously encouraging people under 40 to save for a property by offering incentives which could help people get on to the property ladder.

However, in the nine years since it launched, there have been next to no adjustments despite house prices and living costs going up. The maximum savers can spend on a house using the Lifetime ISA is still £450,000.

According to figures from HM Revenue & Customs (HMRC), more than 1.5 million people are currently using Lifetime ISAs to save for their first property, with 230,000 people having already benefitted from the ISA.

The deadline for information gathering is 4 February, after which the Treasury Committee will deliberate on the best way forward for the Lifetime ISA, and even whether it should continue at all.

What is an ISA?

An ISA, or Individual Savings Account, is a scheme that allows anybody to hold cash, shares and unit trusts free of tax on dividends, interest, and capital gains. Essentially, it’s a savings account that you don’t pay tax on.

You can save up to £20,000 each tax year and receive tax-free interest payments, so when the value of your cash ISA increases, you get to keep all of it tax-free (source: gov.uk). 

The Lifetime ISA explained

You can only save up to £4,000 a year in a Lifetime ISA, and the Government guarantees that 25% of your investment will be matched. That means if you put the max amount of £4,000 in your Lifetime ISA each year, the Government will add £1,000.

The caveat is that the money accumulated in a Lifetime ISA can only be used to either buy your first home, or to be withdrawn after the age of 60, or in the exceptional case that you are terminally ill with less than 12 months to live. Withdrawal under any other circumstances incurs a 25% penalty to the entire pot. 

If you have £100,000 or more in pensions, savings and investments and would like to receive a free initial cash flow forecast, up to the value of £500, please arrange a chat here.  

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The Financial Conduct Authority (FCA) does not regulate tax and cash flow planning.

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

2024 ended with inflation at slightly higher than the Government’s target of 2%, although a little lower than expected, the latest figures from the Office for National Statistics (ONS) show.

In the 12 months to December 2024, the headline inflation rate as measured by the Consumer Prices Index (CPI) was 2.5% - slightly lower than 2.6% in November – and below the forecast which was for the rate to remain unchanged.

Possibly more importantly though, core inflation fell to 3.2% from 3.5% in December, and services inflation fell too, from 5% in November to 4.4% in December. These latter inflation measures are reviewed closely by the Bank of England when they consider interest rate decisions. And what these figures mean is that a base rate cut could well be on the cards at the next Monetary Policy Committee (MPC) base rate meeting on 6th February 2025.

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Michael Saunders, a former member of the Bank of England's MPC, told the BBC, "if it stays like this, we will be "en route" to slightly more interest rate cuts"

The key drivers of the unexpected fall in inflation in December were the slowing price rises of restaurants and hotels. The ONS reported “The annual inflation rate for restaurants and hotels was 3.4% in December 2024. This is down from 4.0% in November and is the lowest annual rate since July 2021. On a monthly basis, prices fell by 0.1%, compared with a rise of 0.5% a year ago.”

However, Rob Wood, the Chief UK Economist at Pantheon Macroeconomics said that “Both will reverse in January, so the dovish news today [15/01/2025] is a temporary reprieve.” He added that “inflation is still heading above 3% in April.”

So, the Bank of England policy makers are likely to remain cautious and it’ll be interesting to see what the January inflation figures look like, which will be announced ahead of the next MPC meeting.

We‘ll have to wait and see, but the good news for savers is that while we do so, there are other economic forces at play, that are causing fixed term bond and ISA rates to increase!

It’s been widely reported that UK gilt yields have been soaring, and this is a concern as the Government has to offer higher interest rates to attract investors to new bonds.  

Governments generally borrow money by selling bonds (known as gilts in the UK) to big investors, such as pension funds. The higher yields increase the cost of borrowing, potentially straining public finances, especially if the government has a large debt.

But on the plus side for savers, rising gilt yields is linked to rising fixed term savings rates, and that is what we have seen recently, especially on the best rates for longer term bonds and ISAs. Increasing savings rates and slowing inflation is a great combination for savers and means that there are many accounts available that are paying an interest rate that is higher than the current level of inflation, even if you now pay tax on your savings interest.

Take advantage while you can

At the beginning of this year, the top 5-year bond was paying 4.50%, but at the time of writing, this has leapt to 4.78% - and even more interestingly, this rate is higher than the top 1-year bond, which is currently 4.77%.

It’s been quite some time since you could earn more when locking your cash up for longer – so it’s a good opportunity to get a top rate that should provide an inflation beating return over the next few years, even though interest rates are expected to continue to fall, although more slowly and to less of a degree than previously expected.

Rates on the top fixed term cash ISAs have increased too this year, but the longer term are still paying less than the short-term accounts. The average of the top five 1-year ISAs is now 4.53% up from 4.50% at the beginning of the month, although the best rate is only 0.01% higher at 4.54%, up from 4.53% on 2nd January.  The top 5-year ISA is now paying 4.21%, up from 4.18%. Regardless of how small, increases are welcome, nevertheless.

But things may already be settling down.

The yield on the 10-year gilt - the interest rate at which the government pays back a decade-long loan to investors – dropped to 4.72% on Wednesday, having risen to nearly 4.9% on Monday, its highest level for 17 years.

Meanwhile, by Wednesday, the 30-year gilt yield stood at 5.30%, below Monday's peak of 5.46%.*  

As a result, if you are thinking of locking up some of your cash, you might want to strike while the iron is hot, as we don’t know when things may reverse.

Take a look at our Best Buy tables to find the right account to pay you the most interest.

Check if your savings are keeping ahead of inflation with our inflation calculator below:

If you have £100,000 or more in pensions, savings and investments and would like to receive a free initial cash flow forecast, up to the value of £500, please arrange a chat here. 

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice.

The accounts and rates mentioned in this article are accurate and correct as of 16/01/2025.

* Source: FT & MarketWatch

As we start 2025, we thought it would be interesting to look back at another great year for savers. Although we did see two base rate cuts in 2024, which means that rates not only plateaued, but even started to fall a little, overall it was still a positive year, with interest rates staying higher than previously expected.  

However, it’s not been completely straightforward as market predictions about when and by how much the Bank of England base rate will be cut, has seesawed amid multiple economic shocks.

All of that said, with inflation falling to closer to the Bank of England’s 2% target, there have been more accounts than ever available to savers, paying inflation busting interest rates, even after the deduction of tax.

So let’s do a roundup of how the most popular sections of the savings market have performed over the past year and what is still available.

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Easy Access

2024 started buoyant, as the top easy access rates were pretty close to the highest they had been for years – all of the top accounts were paying more than 5%, with the top rate from Metro Bank paying 5.22%.  

But as inflation started to fall steadily from January, the market started to anticipate that the base rate would be cut at some stage, so the top rates available stalled and even started to fall a little. By April, only a couple of accounts were left in the best buy tables paying at least 5%, although some healthy competition saw things improve a little for a few months giving savers plenty of options to earn more than inflation.

Once the base rate was cut though, the first time in August and then again in November, as expected, especially with variable rate accounts, the rates on offer started to fall – as well as the rates on some of the closed accounts – and of course the rates on the high street bank easy access accounts have all come a cropper.

On a balance of £10,000, the most you can earn with a high street bank is 1.75% AER – but you could be getting as little as 1.15% which is what Lloyds is paying on the Easy Saver Account on balances of up to £25,000!

In the meantime, you can earn 4.75% on a standard easy access account with Gatehouse Bank – that’s the difference of earning £115 or £475 on a deposit of £10,000! I know I could do with an extra few hundred pounds or more which is the reality if you have kept your cash in a top paying account.

There is a clear benefit to monitoring your variable rate accounts closely and switching regularly if you want to keep your accessible cash earning as much as possible.

Fixed Term Bonds

Fixed Term Bonds have been extremely popular over the last year – no surprise when the spectre of interest rate cuts is on the horizon.

And although rates peaked in 2023, reaching the heady heights of over 6%, things were already starting to fall by the beginning of 2024.

Whilst those who opened a 1-year bond this time last year found that the rates available to them were a little lower than they had been earning, if inflation continues to remain at its close to target level, the real returns are likely to be very similar.  

In January 2024 the top 1-year bond was paying 5.5% but inflation stood at 4% and has been on average 2.66% over the last 12 months. On a deposit of £50,000, after 12 months although the total balance including accrued interest would be £52,750, the real value after the effect of 2.66% inflation would be £51,388, importantly still keeping up with the cost of living

Today, although the top 1-year bond is 4.77%, if inflation is close to 2% for the next 12 months, whilst the total balance including interest would be £52,385 in a year’s time, the real return would be £51,358, so virtually the same!  

Once again, this illustrates the importance of shopping around for the best rates, to put as many pounds in your pocket as possible, especially while the rates pay more than inflation. Make hay while the sun shines!

Take a look at our inflation calculator here to see how picking the right savings account could improve your returns.

The picture has been similar across all terms, but interestingly, although the longer-term bonds are still paying less than shorter term bonds, over the last 12 months, the top rates on offer have fallen less on the longest-term bonds – so the gap is narrowing. This indicates that the markets are expecting rates to stay higher than previously anticipated, for longer.

The top 2-year bond was paying 5.25% AER at the beginning of 2024, and the top 5-year bond was 4.75%. But while the top 2-year rate has now fallen to 4.65%, the top 5-year rate is 4.50% - so not much lower if you did want to hedge against further rate cuts over the next few years.

Those looking to tie up some of their cash could and still can earn more than inflation if they choose carefully. And if inflation remains near to the government target for the next few years, if you lock some of your money away for the longer term, you could be feeling very pleased with yourself further down the line, if interest rates and therefore the savings rates available continue to fall.

The good news for savers is that whilst it seems clear that rates are on a downward trajectory, it is already obvious that the markets had got it wrong when they anticipated that the base rate would be quite a lot lower by the end of 2024 than it actually is. It’s now expected that rates will stay higher for longer, hopefully giving savers some stability for a while.

Fixed Term Cash ISAs

Cash ISAs continued to be extremely popular in 2024, as high interest rates meant that savers were paying more and more tax on the precious interest they were earning. Nearly £51 billion has poured into cash ISAs over the last 12 months, according to the latest statistics from the Bank of England.

The good news is that this appears to have sparked some healthy competition between savings providers so that, although the rates available on the top fixed term cash ISAs have fallen too, the decline has been slower than the bonds, which means the gap between the top bond rates (before tax) and the tax-free ISA rates has narrowed.

And once again, the rates on the longer-term accounts have been more resilient overall, which means the gap between the short term and long-term top cash ISAs has narrowed, making it more palatable to consider putting some cash away for longer.

The top 1-year cash ISA in January 2024 was 5.01%, whilst the top 5-year cash ISA was paying 4.30%. Today the top 1-year ISA is paying 4.53%, whilst the top 5-year ISA is paying 4.18% AER – so the gap between the 1-year and 5-year rates has narrowed from 0.71% to just 0.35%.  

And remember, it’s not just the headline rates you want to compare. You need to calculate how much interest you would take home from a bond, versus a cash ISA. If you are a non-taxpayer, or you don’t currently fully utilise your Personal Savings Allowance (PSA), then a cash ISA may not be the best choice.  

However, many more savers do now use their PSA and therefore the tax-free rate of the cash ISA can still be considerably more than the interest earned after tax has been deducted on the taxable non ISA bond equivalents.  

For example, in December 2021 before the base rate started to rise, the top 1-year bonds were paying around 1.30%, and although you could earn a little more if you were prepared to fix for longer, the top 5-year bonds were still only paying around 2%.  

With a 1-year fixed rate bond paying 1.30%, you would need a deposit of £76,924 to breach the £1,000 PSA for basic rate taxpayers.  

With the top 1-year bond paying 4.77% today, just £20,964 will produce £1,000 in interest.

And this is why cash ISAs have become so popular once again. Although the headline rates on bonds look as though they will provide more, they may not if you pay tax on your savings. For example, if you were to deduct basic rate tax from the top 1-year bond paying 4.77%, the net rate is 3.82%. In the meantime, the top 1-year fixed rate cash ISA is paying 4.53% tax free. So, on £20,000 you would take home £764 from the bond, but £906 from the ISA!  

The difference is clear to see – people are simply choosing the option that gives them the highest returns possible. And when tax is taken into account, the higher rates that bonds appear to offer simply become less advantageous compared to fixed rate cash ISAs.  

So, for many the cash ISA allowance is not to be disregarded.

If you’d like to learn more about how we can help you to grow and protect your savings, why not get in touch for a free initial review with one of our expert advisers.

Arrange your free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. The accounts and rates mentioned in this article are accurate and correct as at the time of writing

Further to the recent announcement from NS&I that the Premium Bond prize fund rate and the easy access account rates are to be cut from December, as we have come to expect, the state bank has followed this by dropping the rates available on the Fixed Term Guaranteed Income and Growth Bonds – also known as the British Savings Bonds.

Added to that, the 5-year Bond has been withdrawn from general sale, although it is still available for those with maturing bonds.

Are these new bonds competitive?

The new interest rate on the 2-year Growth option is 3.60% gross/AER, and the Income option is 3.54% gross / 3.60% AER – down from 4.10% AER/4.02% monthly.

The new rate on the 3-year Growth option is 3.50% gross/AER, and the Income option is 3.44% gross / 3.49% AER, down from 4% AER/3.95% monthly.

The rates on the 1-year and 5-year bonds have also been cut, although these terms are only available to those with existing bonds that are maturing.

The new 1-year rate is just 3.95% AER/3.88% monthly, down from 4.35% AER/4.26% monthly, whilst the 5-year bond is now offering 3.40% AER/3.34% monthly, down from 3.90% AER/3.83% monthly.

The new rates are disappointing, but the good news is that there are rates available from the rest of the market that are better than even the previous higher NS&I rates, as the table below shows.

In fact on a balance of £50,000 you could be missing out on over £500 a year!

Rates Correct at 23/12/2024

So, these cuts could encourage savers to shop around to earn more.

That said, as you can put up to £1m into each issue of these bonds, some people would prefer to accept a lower rate, in order to minimise the hassle of opening multiple accounts to keep the cash protected. NS&I is unique because it is fully backed by HM Treasury. This government guarantee means that 100% of any money you invest with NS&I is safe, no matter how much you save. That said, other banks or building societies, are protected by the Financial Services Compensation Scheme (FSCS) up to a limit of £85,000 per person per institution, so for those with less than £85,000 or prepared to open multiple accounts, NS&I may not be the first choice.

However, the rise of the cash savings platforms has added another option for those with larger amounts of cash.

Think of a cash savings platform like a savings supermarket, where with a single application and log-in, you can pick and choose multiple competitive savings accounts - from easy access to fixed term bonds - and providers at the click of a button. Whilst not whole of market, cash platforms do make it easier to spread your cash, so that it can be better protected by the Financial Services Compensation Scheme (FSCS).

You can now open, access and switch between multiple competitive savings accounts via a single log-in with the our Savers Hub, powered by Insignis.

Arrange a free initial consultation

This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions.

The Financial Conduct Authority (FCA) does not regulate cash advice or tax.

The accounts and rates mentioned in this article are accurate and correct as of 23/12/2024.