Understanding Current Savings Rates and Future Outlook
A Guide for Savers
As we approach the end of 2024, it is crucial for savers to be aware of the current interest rates and the potential changes that may unfold in the coming year. At Cutts & Co Accountancy, we aim to provide you with a comprehensive overview of the current savings rates, their historical context, and what the future might hold.
Current Savings Rates
Currently, savings rates in the UK are influenced by the Bank of England’s base rate, which has been held at 4.75% as of December 2024.
For instance, HSBC UK offers various savings products with competitive rates. Their Regular Saver account, effective from 7 October 2024, provides a gross interest rate of 5.00% for monthly deposits ranging from £25 to £250. This rate is a slight decrease from the 7.00% rate that was applicable from 9 September 2024 to 6 October 2024.
Similarly, the Fixed Rate Cash ISA at HSBC UK offers an Annual Equivalent Rate (AER) of 4.05% for deposits of £500 or more, effective from 6 November 2024. This is a minor adjustment from the previous rate of 4.20% AER, which was in place from 2 October to 5 November 2024.
Historical Context and Recent Trends
In 2023, savings rates in the UK experienced a significant rise following the increase in the Bank of England’s base rate, which peaked at its highest level since 2008. This trend was mirrored in mainland Europe as savings rates gradually increased after years of negative interest rates set by the European Central Bank.
However, since the peak in 2023, savings rates have started to level off. The base rate, although still relatively high at 4.75%, indicates a stabilisation rather than a continued upward trajectory.
Future Outlook
Looking ahead to 2025, several factors suggest that savings rates may not remain as high as they have been in recent years.
Interest Rate Projections
Deloitte’s 2025 banking and capital markets outlook suggests that interest rates are expected to drop meaningfully. With inflationary pressures subsiding, the Consumer Price Index is anticipated to approach the 2% target rate, potentially leading to several rate cuts in 2025. This could bring the effective federal funds rate down to between 350 and 375 basis points.
Economic Growth
The UK economy, while performing better than expected in 2024, is forecasted to experience decelerated growth in 2025. This economic slowdown, combined with lower interest rates, may result in reduced savings rates.
Deposit Market
Despite the drop in interest rates, the cost of funding for banks is not expected to decrease commensurately. Deposit betas are likely to remain high due to the demand for liquidity and depositors’ reluctance to accept lower deposit rates. This could mean that while savings rates may drop, they might not fall as sharply as other interest rates.
Strategies for Savers
Given the potential changes in savings rates, here are some strategies that savers might consider:
Locking in Rates
With interest rates expected to fall, it might be wise to lock your money into fixed-rate savings products now to secure the current higher rates. For example, HSBC UK’s Fixed Rate Cash ISA offers a competitive rate for a fixed term, which could be beneficial if rates decline in the future.
Diversification
Consider diversifying your savings across different types of accounts. This could include a mix of easy-access savings accounts and fixed-rate products to balance flexibility with higher returns.
Monitoring Rate Changes
Keep a close eye on changes in the Bank of England’s base rate, as these changes can directly impact the interest rates offered by savings accounts. Banks like Chase UK adjust their savings rates in response to changes in the base rate.
Conclusion
As we move into 2025, it is essential for savers to be informed about the current and future trends in savings rates. While rates may not remain as high as they were in 2023, there are still opportunities to maximise your savings through strategic planning and diversification.
At Cutts & Co Accountancy, we are committed to helping you make the most of your financial resources. Whether you are looking to optimise your savings or need advice on broader financial planning, our expert team is here to guide you every step of the way.
