Where will savings rates go in 2025? Three experts give their verdict

After a huge upward swing in 2023, savings rates dried up in 2024.

Savers can still find rates that pay 5 percent, but experts say the best savings rates will fall below 4 percent in 2025.

In December, the Bank of England opted to keep the base rate at 4.75 percent after cutting it from 5 percent in November.

But with the Bank of England expected to cut rates between two and four times next year, savers are likely to see their rates cut as a result.

We asked the savings experts James blower of the Savings Guru, Rachel Springall from Moneyfacts compare and Anna Bowes from The Private Office for their savings predictions for 2025.

Savings rates will fall below 4%

Average rates on easy-access and notice accounts have fallen since early 2024.

The average easy access rate has fallen from 3.15 per cent since the start of 2024, while the average easy access Isa rate has fallen from 3.25 per cent.

The average easy access account now pays 2.9 per cent interest according to rate tracker Moneyfacts Compare, while the best one-year fix pays 4.19 per cent.

James Blower, founder of the Savings Guru website, said: “The Bank of England is forecasting four base rate cuts in 2025, which will bring the rate down to 3.75 per cent by the end of 2025.

‘Assuming this is what happens, the best easy buys will fall to around 3.6 per cent by the end of next year.

‘Easy Access Isa fees could be a little higher (around 3.8 per cent – 3.9 per cent) as we are seeing increasing competition in this space from non-bank providers.

‘I hope that fixed interest rates will be more uniform than today, where the best rates are on the shortest terms and the lowest on the longest terms.

‘This is because rates are currently expected to fall significantly in the long term, so suppliers are discounting this.

‘I would expect the best one-year fixed rates to be just below 4 per cent by the end of 2025, but the best five-year rates to be around 3.8 per cent at that time.

Rachel Springall, finance expert at Moneyfacts Compare, said: ‘There are expectations that interest rates will fall next year if such stubborn inflation begins to stabilize.

‘This will be bad news for savers as we could see several cuts to the Bank of England base rate, which tend to pass through to variable savings accounts relatively quickly.

“Fixed rate bonds have been falling in recent months and are likely to continue falling as 2025 begins, however there will be challenger banks bucking this trend if they need to attract deposits for their future lending.”

Another Isa career is at stake

Isas have received record amounts since the start of the financial year on April 6, 2024. In April itself, savers funneled £12.3 billion into Isas.

There are two main factors behind the rise of cash Isas: higher savings rates on regular accounts mean deposits of £20,000 are likely to breach the Personal Savings Allowance (PSA) and also High cash Isa rates have attracted savers.

But it means millions of savers will now have to pay tax on their savings, potentially for the first time.

The PSA means basic rate taxpayers pay no tax on the first £1,000 of interest earned each year, while higher rate taxpayers have a £500 allowance. Additional rate taxpayers do not receive a PSA.

Savers have been using tax-friendly Isas to combat this, as any interest earned on money hidden in an Isa is completely tax-free.

Blower said: ‘ISAs received record amounts in April 2024 and April 2025 is likely to be strong again; We often see a delay in Isas where savers get hit by a tax bill and then remember to use them and I think that will happen next April.

“However, rates will be lower than April 2024 and that’s why I think it will be a strong month, but it won’t surpass the April 2024 high.”

Competition among non-bank Isa providers will continue into 2025, with more joining the market before the end of the financial year, Blower adds.

“These are using savings as a cheap acquisition cost to enter the market, so they pay more to attract savers because this is more profitable for them than paying for acquisition through traditional marketing channels.”

Anna Bowes, savings expert at The Private Office, said: Cash Isas are likely to remain popular until 2025, as savers try to protect as much of the interest they earn from the taxman as possible.

“Although rates have fallen slightly from last year’s highs, just £25,000 in cash earning 4 per cent will exceed the £1,000 Personal Savings Allowance (PSA).

Rachel Springall said: ‘Cash Isas are likely to become increasingly popular with savers who need to default on their personal savings allowance, so it will be interesting to see how that market copes with potential demand in 2025.

More misery for NS&I savers

More than 24 million people own premium bonds in the hopes of one day winning big and potentially becoming millionaires.

But NS&I dealt a blow to savers this year by announcing two cuts to the premium bond prize fund rate in as many months later this year.

The prize fund rate represents the average return that a Premium Bond saver would obtain in one year,

The Treasury-backed bank had not even applied its top prize cut to the December draw before announcing another cut from January 2025.

The prize fund will remain at 4 percent in the January 2 draw after being cut from 4.15 percent.

Blower said: ‘Premium bonds are likely to continue falling with the market, but I think their most recent cut (to 4 per cent) was ill-timed and they may fall more slowly than the rest of the market to move more in line.

‘Much will also depend on what NS&I target for the 2025/26 financial year, which for them starts on 1 April 2025.

Springall said: “NS&I is a trusted brand and provides 100 per cent capital security, so its bonds may still appeal to deep-pocketed savers who are happy to forgo the higher interest rates available elsewhere. places”.

‘NS&I needs to ensure it is on track to meet its net funding targets, so it needs to price its accounts accordingly. NS&I would traditionally react to any interest rate movements within the broader markets, to ensure it is not too far ahead of the competition.

‘They can also review bonus premiums to make sure they offer a fair prize, which can go up or down. With this in mind, NS&I is not immune to rate cuts, so savers should keep an eye on their accounts.