As we approach the end of 2016, which was an eventful year by anyone’s standards, we thought we would look at some of the important changes and things to look out for in the coming year. There are some significant changes coming up that will affect savers that we know about already and we are sure that there will be a number of surprises, if this year was anything to go by! The main thing we are hoping for is an improvement to the interest rates available on savings and it is certainly overdue, but there have been some encouraging signs in the last few weeks to give us grounds for cautious optimism.
An increase to the FSCS limit
The Prudential Regulation Authority (PRA) has just completed a consultation on plans to increase the Financial Services Compensation Scheme (FSCS), putting it back to £85,000 just a year after cutting it to £75,000 per person, per banking licence. So, you could be in line for £10,000 more in protection under the FSCS, which, if approved will take effect from the end of January 2017. Watch this space for more information!
Improved Interest rates?
The tail end of 2016 has seen improvements to interest rates, particularly amongst fixed rate bonds and whilst there is some way to go before rates are back where we want them, this is at least encouraging. There have been fewer changes amongst variable rate accounts, although the recent launch of several new easy access best buy accounts has been more than welcome. Whilst there is no guarantee that this trend will continue, competition between providers has come back into the savings market in recent weeks and this remains one of the key drivers of interest rates.
…But, higher inflation
November saw the highest rate of inflation, as measured by the Consumer Price Index (CPI), in over two years and there is widespread belief amongst commentators that 2017 will see inflation go beyond the Government’s 2% target. On the one hand, higher inflation could lead to pressure on the Bank of England to increase the base rate, in turn possibly leading to improved interest rates, though this is by no means certain, as providers have shown they don't need a base rate cut to reduce rates. On the other hand, higher inflation can be a saver’s enemy, as the value of savings is eroded over time, if an account pays a lower interest rate than the rate of inflation.
An increased ISA Limit
Announced in the Budget in March and confirmed in last month’s Autumn Statement, the ISA allowance is set to increase from its current level of £15,240 to £20,000 in April 2017. Cash ISAs remain an effective way to build up a tax free lump sum over time and this increase is positive news. With many enjoying tax-free interest through the Personal Savings Allowance (PSA), there has been a question mark around the value of cash ISAs, but with an amount that will stay tax free regardless of interest rate, there is still a place for cash ISAs as part of a saver’s saving strategy.
A new NS&I fixed rate bond
A new market leading fixed rate bond from NS&I is due to launch in the Spring, paying an indicative rate of 2.20% gross/AER for three years. Anyone over the age of 16 can open the bond and up to £10,000 can be put into the account. Interestingly, the Chancellor stated that the bond will be market leading and the interest rate given is indicative, so it could be interesting to see whether we see an even higher rate by the time it is launched, if fixed rates continue to move upwards.
New Lifetime ISAs
Another new type of ISA is set to be launched in April, this time aimed at those up to the age of 40, that are looking to save for a deposit for their first home or for retirement. With a 25% bonus added each year by the Government, many will be taking a look at this new ISA in 2017. However, it has not been positively received by all, with several commentators questioning whether this could lead to some turning their back on a traditional pension, rather than using this ISA to supplement their retirement savings. It remains to be seen how popular this new ISA will be and how many providers will be offering their own version. For more information, take a look at our handy Lifetime ISA Factsheet.
Even more new banks launched
With 20 new banking licences authorised since 2013 and many more in the queue, we could well see a number of new names enter the market in 2017. This year saw both Atom Bank and Masthaven Bank enter the UK savings market and both announced their arrival with a set of competitive interest rates. With providers like Starling Bank, CivilisedBank, Tandem and Monzo all waiting in the wings, we could see some positive moves, as the new players look to establish a good reputation.
So, these are some of the main things to look out for in 2017, as always, we will keep you informed of all key developments in the savings market throughout the year. If you have any questions or suggestions, please do not hesitate to get in touch, we’d love to hear from you.