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Wealth Management News

Latest News
30 Dec 2015

Savings rates look set to improve in 2016

A recent article on The Telegraph website suggests that 2016 could be the year that savings rates finally start to improve. After five years of investors seeing more than 50% of their interest incomes evaporate, the coming 12 months could see the factors that determine savings rates come together to provide better interest. These factors include:

Increased Bank Rate

Bank Rate is the policy rate set by the Bank of England, and although it isn´t directly connected to the rates savers can expect to receive, it does have an impact. As the Bank Rate starts to increase, so will the wider cost of borrowing and the returns on cash and assets. It has been predicted that the Bank Rate will increase in early 2017, but some now think the first hike could happen sooner than expected.

Fresh competition

New or lesser known banks - including ‘challenger´ brands such as Paragon, Shawbrook and Secure Trust - are offering good rates to attract new customers. This competition has helped to boost top rates - in 2015, for example, the rate offered by the best account rose from 1.4% in January to 1.65% today. This means that while average rates have declined, the very best rates have actually improved, explains Anna Bowes from Savings Champion.

Continued competition for current accounts

As well as competition from new banks, existing institutions remain aware that paying high interest rates is one of the best ways to attract new current account customers. The best one currently is the Santander 123 account, which pays 3% on balances up to £20,000 - although users have to pay £2 a month at the moment, which will rise to £5 per month in January.

The end of pensioner bonds

In January 2015, National Savings & Investments launched bonds for the over-65s in an effort to “compensate” older savers for the cuts they suffered during the recession. These were available from January until May and drove £14bn worth of investment from more than a million depositors. However, once the bonds mature these savers will see their returns halve if they stay with NS&I - which is likely to see rival providers competing to offer much better rates.

Copyright M2 Bespoke 2015


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