Savers are being warned to lock in the best rates while they can, with the latest inflation data likely to lead to more interest rate cuts.
Alice Haine, personal finance analyst at Bestinvest, has said lower inflation makes the chance of a Bank of England base rate cut more likely, which in turn would place downward pressure on savings rates.
“Those keen to preserve returns on bank and building society savings should hunt out the best deal they can find while they can. With further rate cuts expected in 2026, savings rates are likely to drift lower,” she said.
The UK’s rising tax burden is proving even more corrosive than inflation for savers, Haine added.
Frozen income tax thresholds, a future hike to savings income tax, and a cut to the annual capital gains tax exemption are just some of the changes that will see more of savers’ returns swallowed up, she warned.
Haine said: “The countdown to the end of the tax year is underway, with less than seven weeks until allowances reset at midnight on 5 April.
“Savers can shelter up to £20,000 in a tax-free Individual Savings Account (ISA) this financial year, or they can direct surplus cash into a pension, with both options protecting returns from the tax.”
The clock is also ticking for workers benefitting from their employer’s salary sacrifice scheme.
From April 2029, a new £2,000 cap per employee will restrict pension contributions made through this route.
“Until then, those keen to boost retirement savings may want to maximise contributions while the current rules remain – particularly those on the cusp of a higher tax band,” Haine said.
“Remember, while some allowances can be carried forward to the next tax year, such as the Pension Annual Allowance for a set period, most cannot.”