Savings predictions for 2015
Thanks to wide-ranging pension reforms, changes to the property market with the Help to Buy mortgage guarantee and the Mortgage Market Review (MMR), plus rock-bottom savings rates, it's fair to say 2014 was a tricky year for personal finance.
But what will 2015 bring? Moneywise put that very question to three of the personal finance world's leading experts to give us their predictions for the year ahead.
Andrew Hagger, founder of personal finance website Moneycomms.co.uk
Savers have borne the brunt of the Bank of England low-interest-rate stance to protect the UK economy while borrowers continue to enjoy ultra-low mortgage repayments, and it looks like a similar story for 2015.
If you're hoping to see a better return on your nest egg over the coming year, the prospects don't look promising.
According to City experts, the chances of the first base rate increase for almost seven years look quite remote. With the General Election due in May, it'll be a minor tweak of 0.25% at most in the latter part of the year if we see any upward rate movement at all.
For older savers, there's a bit of better news with the planned launch of Pensioner Bonds from National Savings and Investments (NS&I) in January.
These bonds were first announced in the 2014 Budget and figures of 2.8% fixed for the one-year bond and at three-year option at 4% have been touted.
If these rates stand, then they are well ahead of what's on offer in the wider savings market.
The maximum investment in each bond is £10,000 per person, so earning 2.8% instead of 1.9% on £10,000 for a year means savers will get an extra £90 in interest before tax. With the three-year deal at 4% instead of 2.5%, a £10,000 balance will give an extra £150 per year before tax.
The crux of the issue is that the appetite for savers' money from banks and building societies is almost non-existent and it's not surprising that people are looking at alternative ways to earn a better return.
For some people, current accounts will still work out best in 2015, with the Santander 1|2|3 account by far the most attractive as it pays 3% on balances from £3,000 to £20,000 plus you have instant access to your money.
It's no coincidence that while bank and building society savings accounts have been paying pitiful returns, the popular consumer peer-to-peer (P2P) providers, such as Zopa and RateSetter, are seeing record inflows of money.
P2P lenders may not offer the Financial Services Compensation Scheme safety net but they do protect savers' money via their own protection funds, and while there is no 100% guarantee that your capital is safe, RateSetter has been running for more than four years and no one has lost a single penny to date.
With interest rates of 4% and 5% plus on offer, P2P will be an even bigger growth area in the 12 months ahead.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
This is a mutual organisation owned by its members and not by shareholders. These societies offer a range of financial services but have historically concentrated on taking deposits from savers and lending the money to borrowers as mortgages, hence the name. In the mid-1990s many societies “demutualised” and became banks. One academic study (Heffernan, 2003) found demutualised societies’ pricing on deposits and mortgages was more favourable to shareholders than to customers, with the remaining mutual building societies offering consistently better rates. In 1900, there were 2,286 building societies in the UK; in 2011, there are just 51.
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.