2024: A Year of Strong Returns for Savers

As we start 2025, we thought it would be interesting to look back at another great year for savers. Although we did see two base rate cuts in 2024, which means that rates not only plateaued, but even started to fall a little, overall it was still a positive year, with interest rates staying higher than previously expected.  

However, it’s not been completely straightforward as market predictions about when and by how much the Bank of England base rate will be cut, has seesawed amid multiple economic shocks.

All of that said, with inflation falling to closer to the Bank of England’s 2% target, there have been more accounts than ever available to savers, paying inflation busting interest rates, even after the deduction of tax.

So let’s do a roundup of how the most popular sections of the savings market have performed over the past year and what is still available.

Easy Access

2024 started buoyant, as the top easy access rates were pretty close to the highest they had been for years – all of the top accounts were paying more than 5%, with the top rate from Metro Bank paying 5.22%.  

But as inflation started to fall steadily from January, the market started to anticipate that the base rate would be cut at some stage, so the top rates available stalled and even started to fall a little. By April, only a couple of accounts were left in the best buy tables paying at least 5%, although some healthy competition saw things improve a little for a few months giving savers plenty of options to earn more than inflation.

Once the base rate was cut though, the first time in August and then again in November, as expected, especially with variable rate accounts, the rates on offer started to fall – as well as the rates on some of the closed accounts – and of course the rates on the high street bank easy access accounts have all come a cropper.

On a balance of £10,000, the most you can earn with a high street bank is 1.75% AER – but you could be getting as little as 1.15% which is what Lloyds is paying on the Easy Saver Account on balances of up to £25,000!

In the meantime, you can earn 4.75% on a standard easy access account with Gatehouse Bank – that’s the difference of earning £115 or £475 on a deposit of £10,000! I know I could do with an extra few hundred pounds or more which is the reality if you have kept your cash in a top paying account.

There is a clear benefit to monitoring your variable rate accounts closely and switching regularly if you want to keep your accessible cash earning as much as possible.

Fixed Term Bonds

Fixed Term Bonds have been extremely popular over the last year – no surprise when the spectre of interest rate cuts is on the horizon.

And although rates peaked in 2023, reaching the heady heights of over 6%, things were already starting to fall by the beginning of 2024.

Whilst those who opened a 1-year bond this time last year found that the rates available to them were a little lower than they had been earning, if inflation continues to remain at its close to target level, the real returns are likely to be very similar.  

In January 2024 the top 1-year bond was paying 5.5% but inflation stood at 4% and has been on average 2.66% over the last 12 months. On a deposit of £50,000, after 12 months although the total balance including accrued interest would be £52,750, the real value after the effect of 2.66% inflation would be £51,388, importantly still keeping up with the cost of living

Today, although the top 1-year bond is 4.77%, if inflation is close to 2% for the next 12 months, whilst the total balance including interest would be £52,385 in a year’s time, the real return would be £51,358, so virtually the same!  

Once again, this illustrates the importance of shopping around for the best rates, to put as many pounds in your pocket as possible, especially while the rates pay more than inflation. Make hay while the sun shines!

Take a look at our inflation calculator here to see how picking the right savings account could improve your returns.

The picture has been similar across all terms, but interestingly, although the longer-term bonds are still paying less than shorter term bonds, over the last 12 months, the top rates on offer have fallen less on the longest-term bonds – so the gap is narrowing. This indicates that the markets are expecting rates to stay higher than previously anticipated, for longer.

The top 2-year bond was paying 5.25% AER at the beginning of 2024, and the top 5-year bond was 4.75%. But while the top 2-year rate has now fallen to 4.65%, the top 5-year rate is 4.50% - so not much lower if you did want to hedge against further rate cuts over the next few years.

Those looking to tie up some of their cash could and still can earn more than inflation if they choose carefully. And if inflation remains near to the government target for the next few years, if you lock some of your money away for the longer term, you could be feeling very pleased with yourself further down the line, if interest rates and therefore the savings rates available continue to fall.

The good news for savers is that whilst it seems clear that rates are on a downward trajectory, it is already obvious that the markets had got it wrong when they anticipated that the base rate would be quite a lot lower by the end of 2024 than it actually is. It’s now expected that rates will stay higher for longer, hopefully giving savers some stability for a while.

Fixed Term Cash ISAs

Cash ISAs continued to be extremely popular in 2024, as high interest rates meant that savers were paying more and more tax on the precious interest they were earning. Nearly £51 billion has poured into cash ISAs over the last 12 months, according to the latest statistics from the Bank of England.

The good news is that this appears to have sparked some healthy competition between savings providers so that, although the rates available on the top fixed term cash ISAs have fallen too, the decline has been slower than the bonds, which means the gap between the top bond rates (before tax) and the tax-free ISA rates has narrowed.

And once again, the rates on the longer-term accounts have been more resilient overall, which means the gap between the short term and long-term top cash ISAs has narrowed, making it more palatable to consider putting some cash away for longer.

The top 1-year cash ISA in January 2024 was 5.01%, whilst the top 5-year cash ISA was paying 4.30%. Today the top 1-year ISA is paying 4.53%, whilst the top 5-year ISA is paying 4.18% AER – so the gap between the 1-year and 5-year rates has narrowed from 0.71% to just 0.35%.  

And remember, it’s not just the headline rates you want to compare. You need to calculate how much interest you would take home from a bond, versus a cash ISA. If you are a non-taxpayer, or you don’t currently fully utilise your Personal Savings Allowance (PSA), then a cash ISA may not be the best choice.  

However, many more savers do now use their PSA and therefore the tax-free rate of the cash ISA can still be considerably more than the interest earned after tax has been deducted on the taxable non ISA bond equivalents.  

For example, in December 2021 before the base rate started to rise, the top 1-year bonds were paying around 1.30%, and although you could earn a little more if you were prepared to fix for longer, the top 5-year bonds were still only paying around 2%.  

With a 1-year fixed rate bond paying 1.30%, you would need a deposit of £76,924 to breach the £1,000 PSA for basic rate taxpayers.  

With the top 1-year bond paying 4.77% today, just £20,964 will produce £1,000 in interest.

And this is why cash ISAs have become so popular once again. Although the headline rates on bonds look as though they will provide more, they may not if you pay tax on your savings. For example, if you were to deduct basic rate tax from the top 1-year bond paying 4.77%, the net rate is 3.82%. In the meantime, the top 1-year fixed rate cash ISA is paying 4.53% tax free. So, on £20,000 you would take home £764 from the bond, but £906 from the ISA!  

The difference is clear to see – people are simply choosing the option that gives them the highest returns possible. And when tax is taken into account, the higher rates that bonds appear to offer simply become less advantageous compared to fixed rate cash ISAs.  

So, for many the cash ISA allowance is not to be disregarded.

If you’d like to learn more about how we can help you to grow and protect your savings, why not get in touch for a free initial review with one of our expert advisers.

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This article is intended for general information only, it does not constitute individual advice and should not be used to inform financial decisions. The Financial Conduct Authority (FCA) does not regulate tax advice. The accounts and rates mentioned in this article are accurate and correct as at the time of writing