I have a sneaky suspicion that savers could be in for a better year in 2017

I might be wrong – it’s part and parcel of being an opinionated personal finance journalist. But my crystal ball is telling me that the worm is about to turn in savers’ favour.

The era of low interest rates, which has underpinned western world economies since the 2008 fi nancial crisis, is slowly drawing to an end. When rates start rising, savers should begin to see the interest on their cash balances pick up.

Not by a lot but, given the pain that savers have been through in the past eight years, we should be grateful for any small mercies that come our way.

My more upbeat take on the savings market is based on economic, political, regulatory and competitive factors.

First, as we steer ever so slowly to the Brexit door, there is no doubt that Bank of England Base Rate at an all-time low of 0.25% is unsustainable. Inflation, imported from abroad on the back of a weak pound, is on the march again.

Although inflation is running at 1%, most economic gurus (even those at the Bank of England) are forecasting that it could jump to 2.7% by the end of 2017.

This inflation threat has already persuaded the great and good that sit on the Bank of England’s Monetary Policy Committee (MPC) – and determine the level of Base Rate – to dismiss any idea of further cuts. These were being actively discussed in the wake of the Brexit vote and the MPC’s August decision to halve the Base Rate to 0.25%.

While less than a year ago negative interest rates were being talked about, now all the chatter is about when Base Rate will rise. The fact that the cost of new mortgages is edging up is a sure fi re sign that interest rates have bottomed out.

Of course, if Base Rate does increase, it will not be automatically translated into higher savings rates. Banks and building societies are notorious for being tardy when it comes to passing on any benefit of a change in Base Rate to savers. But they will come under pressure to show savers a little kindness, given the rough deal they have handed out to them in recent years.

 

 

Politically, it seems that Prime Minister Theresa May is determined to give savers a little more cheer. Her Chancellor, Philip Hammond, has already revealed patchy details of a new savings product from National Savings & Investments that will be launched in the spring.

It is likely to pay 2.2% annual interest, fi xed for three years (see page 21). Although the maximum investment of £3,000 is hardly generous, this new product may force some savings institutions to respond with more generous offerings of their own.

Regulatory changes should also help savers in 2017, as banks and building societies are required to inform customers of rate changes and the ending of special introductory deals (a short-term rate bonus, for example).

This greater openness should encourage more savers to switch accounts in order to earn more interest. It should also encourage customers of the big traditional high street banks to consider the raft of new challenger banks in the market. Some are making a mark with better than average rates – the likes of Hampshire, Ikano, Masthaven, Paragon, RCI and Vanquis spring to mind.

 

What is my savings battle plan in 2017? For a start, I will be using as much of my tax-free individual savings account (Isa) allowance as possible – £15,240 in the tax year to April, £20,000 in the new tax year beginning 6 April – to shelter my savings from the taxman.

Rather than relentlessly chasing best rates, I will be sticking to those providers that show me a little TLC. Whether it is through stellar customer service (Metro Bank) or rewarding my loyalty with occasional ‘special’ savings deals (Nationwide Building Society).

I am sure that if other banks invested in quality customer service, they would reap the benefits. Finally, I’ll keep my eagle eye on the steps individual banks are taking to counter the mounting threat of fraud.

Tesco Bank was found wanting in 2016 when fraudsters raided the accounts of 9,000 of its customers. Let’s hope my crystal ball is right and that 2017 is a year of cheer – not despair – for savers.

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Your Comments

To quote from your previous article about the new NSI Saving Bond:

"By next spring a 2.2% interest rate may not look appealing"

Charles Calkin, head of financial planning at James Hambro & Co, says: "The 'market-leading' new NS&I savings bond sounds more attractive than it is. The details won’t be announced until next spring, by which point a 2.2% interest rate may not look quite so appealing as it does today.

"The investment limit of £3,000 is not exactly going to make a huge difference to people who can already easily get 1.2% on a three-year savings product with some shopping around. It’s the equivalent of £30 a year extra."

I certainly hope you are right with regards to savings rate increases in 2017 although have to question why the majority of readers who will now have access to the PSA should follow the age old strategy of filling the ISA first when rates are hilariously poor for those products?

Surely best strategy is (or certainly was for 2016 given that Santander, Lloyd's and TSB are all dropping their rates in new year) to play the current account savings game, blended with the highest only regular savers (Nationwide springs to mind for both these products, as does M+S bank) and then should you want the future tax security of the ISA wrapper just dump the savings in an ISA at the start of April?

You get the best of both worlds then, good interest rates (relative to current market conditions obviously!) and easy access to the money should the boiler break down or the dog break his leg etc