2024 has been a challenging year for savers. Base interest rate cuts and the prospect of lower rates in the future have forced banks to reduce their rates from the highs of 6% in 2023 down to below 5%.
However, there are green shoots appearing for savers.
The worst and biggest savings rate falls are hopefully behind us and the outlook for 2025 is looking better than it was at the start of 2024.
This article isn’t personal advice. If you’re not sure an action is right for you, ask for advice.
How have savings rates changed in 2024?
In the past year, we’ve seen some big falls across the savings market with easy-access rates falling by 0.40% and fixed terms falling the most by 1%.
This has meant the highest rates on offer in the latter part of 2024 can all be found in variable rate accounts.
This is mainly because fixed-term savings product are priced based on future expectations of interest rates.
In the last quarter of 2024, we’ve started to see this trend normalise, with fixed terms across the board now offering 4.5% or more. It’s a trend we could see continue into 2025 if further interest rate cuts are taken off the table.
Easy Access | 1y Fixed | 2y Fixed | 3y Fixed | 5y Fixed | |
|---|---|---|---|---|---|
Highest Rate (4 Dec 2023) | 5.22% | 5.80% | 5.70% | 5.40% | 5.00% |
Highest Rate (Nov 2024) | 4.81% | 4.80% | 4.60% | 4.80% | 4.51% |
Change | -0.40% | -1.0% | -0.90% | -0.60% | -0.49% |
12-month fixed rate versus easy access
What’s next for savings rates in 2025?
The outlook for savings in 2025 is looking mixed. While it’s improved more recently, uncertainty is still lingering.
Markets are still pricing in around two rate cuts, with the base rate expected to settle at 4% towards the end of 2025. However, as we’ve seen this year, expectations can change quickly.
Given that fixed rates are dependent on future expectations, I expect fixed rates to remain relatively stable in 2025, with variable rates and particularly easy-access products continuing to come under pressure in the early half of 2025.
If we see a further two cuts in 2025, it’s likely the easy-access market settles around 4%.
This would mean that the savings market returns to a sense of normality with fixed rates offering higher returns than easy access.
For those looking to get ahead of any potential cuts in 2025, you could think about locking in rates so you’re not exposed to further falls in the easy access market. You’ll usually get a higher rate, and because the rate is fixed, you’ll know exactly how much interest you’ll get at the end.
It’s a strategy that’s worked well so far in 2024, but of course it’s impossible to know exactly what will happen to markets in 2025.
Just remember, unlike easy-access accounts, you can’t usually access your money once it’s fixed until the term ends. HL Active Savings offers easy-access products and withdrawals for these usually take one working day.
What’s next for Cash ISAs in 2025?
With certain tax allowances frozen and even slashed, how much tax we pay is likely going to climb over the coming year.
It means more and more savers will look to take advantage of tax free rates and the Cash ISA market will hopefully continue to grow in 2025.
Remember ISA and tax rules can change and their benefits depend on your personal circumstances.
Throughout 2024 the best Cash ISA rates were on savings platforms in the easy access space. But looking ahead to 2025, fixed terms could become increasingly attractive and we could see movement from variable-rate products to fixed-term Cash ISAs.
Across the HL Cash ISA platform, over 70% of instructions have been placed into variable rate products, a trend we expect to shift more towards fixed terms as we move into 2025.
What could be next for rates from the big banks?
There’s likely to be an increase in competition in the savings market in 2025.
That’s because we’ll probably see more new entrants come into the market, but also more pressure from the regulator on large retail banks to ensure their clients are being paid fair value.
To add to the regulatory pressure, banks and building societies still have billions of outstanding TFSME loans, which need to be re-financed next year. This could mean a lot of the banks will have to refinance these loans by raising deposits.
3 things savers can do to maximise their savings in 2025
For savers looking to maximise their interest, these three simple rules could help:
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).