Is 2014 going to be a year for savers to celebrate?
2013 has been a pretty dire year for savers, with the base rate low and the unintended side-effects of the Government’s Funding for Lending scheme has meaning that returns are even lower, while inflation remains above the target 2%. But are things looking up as we move into the new year?
The base rate is still stuck at 0.5%, and few would bet that the rate will increase at any point during 2014- out of 22 City institutions polled by the Treasury, only two think the rate will rise during 2014, and then only to 0.75%. However, the longer term outlook is stronger, with five and ten year rates having recently increased from this time last year. This means you can now get better deals on longer term deposits- but experts would advise holding off anything longer than two years in order to benefit from better future rates.
Inflation has also come down to an only-slightly-excessive 2.1%, and the impending demise of the Funding for Lending scheme now means that inflation-beating savings are no longer the dream they once were. The Guardian claims there are no less than 50 accounts currently on the market that will beat inflation- for a basic rate taxpayer at least. Beating inflation for a higher rate saver is still a more difficult task, but for both, to secure high enough rates generally requires tying up money for at least three years. On current rates, to beat inflation basic rate taxpayers need to earn more than 2.63%, while higher rate taxpayers need to earn at least 3.5% after tax, and only seven-year bonds currently pay enough to compensate for the higher rate of tax suffered.
But tax-free ISA savings rates will no doubt improve in the new year too, as the annual scramble for savers cash hots up before the 5 April deadline. The cash ISA contribution limit is £5,760 for 2013/14 but this increases to £5,940 (£495 a month) after April. Assuming you have that much spare cash, of course...