It’s been a turbulent time for UK savers, with interest rates remaining at an all-time low since 2009. The interest rates on most high-street savings accounts are now so low you are lucky to earn a measly £1 for every £10,000 you deposit. For anyone with cash to deposit, there are very few options, with NS&IB bonds offering paltry returns. Even cash ISAs are no longer worth investing in, Interest rates have fallen and there are no deals to be had.
Unfortunately, it appears as if there is very little respite in sight, at least not yet. Bank of England rates are currently sitting at 0.25%. This means UK savers are getting virtually no return on their investments, and with inflation rising, the majority of UK savings accounts are now paying out below the current rate of inflation.
Inflation has been very low since 2011, but there are ominous signs that it’s creeping up once again. December marked a sharp rise for inflation, with a jump from 1.2% in November to 1.6%. A fall in the value of the pound, together with continued uncertainty over Brexit, has combined to drive up prices. Experts widely believe that inflation could rise as high as 2.8% within two years, which will have a big effect on UK savers.
There is a possibility that the Bank of England will raise interest rates if inflation continues to rise, but some experts fear this will not be the case. At best, the Bank of England could raise the current rate from 0.25% to 0.5% in response to the inflationary pressure, but this would not help UK savers.
Some Grounds for Optimism
There is some respite ahead for UK savers. If inflation spikes further than current Bank of England predictions, or if the economy performs badly in the wake of a Brexit split, there is a strong possibility that the Governor will increase interest rates to put the brakes on inflation. However, many experts fear that interest rates will remain low until at least 2020.
In the long-term, low interest rates and high inflation will cause misery for millions of savers, as the value of their nest eggs will gradually erode. This is particularly the case for savers who keep savings in easy-access savings accounts or cash ISAs. There has been very little competition from challenger banks in this area of the market, so there are few good deals to be had, if any.
Look for Better Savings Deals
What could happen is that many poorly performing savings products will be withdrawn from the market. If you find that your lender is withdrawing your product, use the opportunity to look for a better deal. Fixed rate savings products tend to offer better rates of interest when compared to easy-access accounts. Look for products offered by challenger banks rather than big-name brands, and you will find a better rate of interest. There are likely to be new products entering the savings market in mid-2017, so make a point of shopping around for the best rates.
If interest rates do remain low whilst inflation continues to rise, it’s going to be a very tough year ahead for UK savers, as savings will struggle to keep up with inflation. If you have any debt, use what savings you do have to reduce your debt burden.