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2015 promises to be a year of change for savers, but will these changes mean better returns on your hard earned nest egg? Here's what you need to know:
2014 was another bad year on the whole for savers. Interest rates remained low, with little sign of increasing, and many accounts failed to keep up with inflation.
One glimmer of hope, however, was the change to ISAs that came into effect on 1st July, 2014.
The Chancellor announced that ISAs were to become NISAs (New Individual Savings Accounts) in his Budget announcement in March 2014.
The change saw a big boost to the amount you can save tax free to £15,000, as well as increased flexibility in how your ISA allowance can be split between Cash ISAs and Stocks and Shares NISAs.
Our guide, What is a NISA?, explains the new ISA changes.
The jury is still out as to whether or not the ISA changes have been a success and encouraged savers to take advantage of the increased limits, as ISA rates have remained at record low levels.
If you pay tax on your savings then an ISA can still be very worthwhile, especially if you're a higher rate taxpayer. Our guide, Why It's Still Worth Using Your ISA Allowance, explains why ISAs are good savings option.
There are a number of big changes taking place to savings accounts in 2015 that could have a dramatic impact on interest rates and affect your returns:
Chancellor George Osbourne announced that the 2015/16 ISA limit will increase from £15,000 to £15,240 on 6th April, 2015 during his Autumn Statement. This increase is in line with the current rate of inflation, as measured by the Consumer Price Index (CPI). The Treasury have used the September 2014 CPI figure of 1.2% to calculate the increase.
With pensions rules changing in April 2015 making it easier and cheaper for you to draw down your funds from the age of 55, an ISA could be the perfect place to store some of your pension money tax free.
A number of the big banks are culling many of their old savings accounts in 2015, including Barclays, Lloyds, Halifax and Bank of Scotland. All account holders will have their money moved to new savings accounts that can be managed in branch, or new e-saving account equivalents; both offer returns far below the best high interest savings accounts available at the moment.
Although some customers will benefit from slightly better returns because of the change, many will be worse off and find themselves on a lower savings rate. Even those that find themselves earning more should take it as a nudge to compare savings accounts and switch early on in 2015.
Check our blogs; Lloyds, Halifax & Bank of Scotland Force Savers onto Rock Bottom Rates - Will You be One of Them? and Barclay's Big Savings Cull: Will You be Worse Off? to see if your account is affected.
From July 2015 savings up to £1 million could be protected under the Financial Services Compensation Scheme for a period of six months.
The scheme currently protects savings up to a value of £85,000 per financial institution (£170,000 in joint accounts) should your bank or building society fail.
The change is designed to protect funds temporarily held in a deposit account after a house sale or on receipt of an inheritance. Although this change to the FSCS protection limit won't affect savings account rates, it will provided added peace of mind if you have to deal with large sums of money in 2015.
Our blog, FSCS Protection Set To Soar to £1 Million?, explains how you can use this change to your advantage.
The new NS&I Pensioner Bonds will launch in January 2015, promising market leading savings returns for those over the age of 65.
Initially, a 1 year Pensioner Bond paying 2.8% AER and a 3 year Pensioner Bond paying 4% AER will be launched on a first come, first serve basis. They were originally announced by the Chancellor in his March 2014 Budget Statement.
Although the government-backed accounts will offer the best rates on savings accounts for those over the age of 65, it's worth noting that they don't offer monthly interest, so may not be suitable if you need regular savings income. You'll need to be sure you can afford to tie your money up for a period of time before you invest in a Pension Bond.
Our blog, New NS&I Pensioner Bonds with Market Leading Interest Rates, explains how to get a Pensioner Bond before they reach maximum capacity.
The Funding for Lending Scheme provides affordable funding for banks and building societies from the Bank of England with the intention that they will lend more readily to mortgage applicants and business borrowers. Originally launched in July 2012, the scheme was due to end at the start of 2015 but has been extended to January 2016.
The Funding for Lending Scheme has had a knock on effect for savers, and unfortunately it's not a good one because it's given banks an alternative source of income so they don't need to attract funds from the public by offering high interest savings accounts. This has contributed to the low interest rates for savers currently on offer.
The extension of the scheme could mean that UK savings rates are set to remain low for another year, unless other factors change.
Opinion seems to change by the day as to when the Bank of England Base Rate will finally be increased. The rate has be set at 0.5% since March 2009 and has shown little sign of movement, but experts are predicting an increase to 0.75% in 2015.
Many are predicting that the base rate will remain at its record low until at least August 2015, with some predicting another year of stasis. The interest on savings tends to be aligned with the Bank of England's base rate, so another year of 0.5% will mean it's unlikely that your savings will grow in real terms in 2015.
Even a slight increase to 0.75%, although a positive step, is unlikely to see either bank or building society savings rates improve to the levels we saw before the economic downturn. This uncertainty means that long term fixed rate accounts may be better avoided in favour of instant access savings accounts, very short term bonds or current accounts, so that if or when a change comes you'll have the freedom to move your money, and you won't be tied in to a low rate account.
Our guide; Current Accounts vs Savings Accounts covers the pros and cons of keeping your savings in your current account.
For more information on how the low base rate effects your savings, check out our guide: Bank of England Base Rate Frozen at 0.5%: What it Means For You.
The Financial Conduct Authority (FCA) launched a market study to assess whether competition in the cash savings market is working for consumers in October 2013.
They've looked into consumer behaviour and supplier conduct, and while it remains to be seen whether the FCA will intervene in the market, their findings so far have found:
The FCA will be publishing their final report in January 2015.
Despite all the changes that will take place to the savings market in 2015, it seems doubtful that interest rates will increase dramatically. It's therefore extra important that you regularly compare savings rates to get the best deal possible.
You should have a think about what you want from your savings; do you need the flexibility and easy access of an instant access savings account, the easy management of online saving accounts or high returns offered by fixed rate bonds? Once you know what you need your new savings account to do, you'll be in the best position to search for the best savings account you can.
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