The start of the New Year has prompted many to resolve to put aside more money for a rainy day, but while savers' intentions are in the right place, our research shows that few may be encouraged to follow through thanks to less than enticing savings rates…
Many will be looking forward to getting their finances in order for 2016, but unfortunately, a brand new year doesn't necessarily mean a fresh start in the savings market. In fact, savings rates have hit another record low, with our figures showing that the average easy access ISA rate has fallen by 0.19% from two years ago to stand at just 1.06% today, the lowest level Moneyfacts has ever recorded.
The table below highlights the changes in more detail, and as you can see, it's not looking good:
It all makes "disappointing news for the start of 2016", said Charlotte Nelson, finance expert at Moneyfacts, and means that those who wanted to get into the savings habit this year could get far less than they bargained for.
"Many savers wanting to start building a nest egg will look towards highly flexible easy access savings accounts and ISAs, but anyone looking at the rates available today will perhaps question the benefit of saving at all," said Charlotte.
"For example, back in 2013 the top-paying easy access ISA paid 2.75% yearly, but the best rate today is only 1.50% – a significant 1.25% less. Standard easy access savings accounts don't fare any better, either, with the top rate falling by 0.68% from 2013 to just 1.65% today."
For a long time, ISAs have been the go-to product for not only some of the best rates available, but also for the tax shelter they provide. However, this may be coming to an end – not only are rates falling dramatically, but with the new tax rules for all savings accounts coming into play in April (whereby the first £1,000 in savings interest will be tax-free, no matter where you choose to save), ISAs are likely to lose some of their attraction. Unfortunately, this means that low rates are likely to become more, not less, prevalent.
The future isn't exactly looking bright, and "with such a glum outlook, savers are pinning their hopes on a base rate rise this year", added Charlotte, but even this may be ill-founded: "Money from the Funding for Lending Scheme still needs to be spent, so the potential boost to savings rates by a rise in base rate could be weak to non-existent," she concluded.
So just what can you do if you want to boost your returns? Well, it could be time to think outside the box. If you've only got a small amount to save, then looking to high interest current accounts, for example, could be ideal – these may technically be current accounts but they could easily double up as savings accounts, and with interest rates of up to 5% on offer, they pay far more than even the best savings account on the market.
For those who have a slightly higher risk appetite, it may be worth considering stocks & shares ISAs. Unlike their cash-based counterparts there's no set rate of interest, with the returns being determined by the performance of the stocks the account funds. However, while this offers the potential for more returns, it also comes with a lot more risk, so should only be considered by those who are truly comfortable with their returns (and even their capital) not being guaranteed.
Of course, those who would prefer to keep their savings in cash could still find some decent rates – it's all about doing your research. Average rates may be dropping but it's important to remember that they're just averages, and if you check out our best buys, you could find a far better deal.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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