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

After a huge upward swing in 2023, savings rates petered out in 2024. 

Savers can still just about find rates paying 5 per cent but experts say the best savings rates will dip below 4 per cent in 2025. 

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

But with the Bank of England predicted to cut between two to four times next year,  it’s likely that savers will see their rates cut as a result. 

We asked savings experts James Blower of Savings Guru, Rachel Springall of Moneyfacts Compare and Anna Bowes of The Private Office for their savings predictions for 2025. 

Savings rates will fall below 4%

Average rates across easy-access and notice accounts have fallen since the start of 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 rates monitor Moneyfacts Compare while the best one-year fix pays 4.19 per cent. 

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

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

‘Easy-access Isa rates could be a bit higher – around 3.8 per cent – 3.9 per cent – as we are seeing increasing competition in this space from non-bank providers. 

‘I expect fixed-rates to be more uniform than at present where the best rates are on the shortest terms and lowest on the longer terms. 

‘This is because currently rates are expected to fall significantly over the longer term so providers are pricing this in. 

‘I’d expect the best one-year fixed rates to be just under 4 per cent by the end of 2025 but the best five year rates to be at around 3.8 per cent at that point.

Rachel Springall, finance expert at Moneyfacts Compare said: ‘There are expectations for interest rates to drop next year if such stubborn inflation starts to settle. 

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

‘Fixed-rate bonds have been falling in recent months and these may well continue to drop as 2025 begins, however there will be challenger banks breaking this trend if they need to draw in deposits for their future lending.’

Another Isa rush is on the cards

Isas have seen record amounts flow into them since the start of the tax year on 6 April 2024. In April itself, savers funnelled £12.3billion into Isas.  

There are two main factors behind the cash Isa boom – higher savings rates on regular accounts means deposits of £20,000 are likely to breach the Personal Savings Allowance (PSA) and also high cash Isa rates have pulled savers in.

But it means that millions of savers will now owe savings tax on their pots, potentially for the first time.

The PSA means that 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 don’t receive a PSA. 

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

Blower said: ‘Isas saw record amounts go in to them in April 2024 and April 2025 is likely to be strong again – we often see a lag on Isas where savers get hit with 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 this is why I think it will be a strong month but not beat the high of April 2024.’

Competition among non-bank Isa providers will continue in 2025 with more set to join the market ahead of the end of the tax year, Blower adds. 

‘These are using savings as a cheap acquisition cost to enter the market so they pay over the odds to attract savers because this is more cost effective for them than paying for acquisition via traditional marketing channels.’

Anna Bowes, savings expert at The Private Office said: Cash Isas are likely to continue to be popular into 2025 as savers try to shelter as much of the interest they earn from the taxman, as they can. 

‘Even though rates have fallen a little since the highs of last year, just £25,000 in cash earning 4 per cent will breach the £1,000 Personal Savings Allowance (PSA).’

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

More misery for NS&I savers

More than 24million people own Premium Bonds with the hope of one day winning big and potentially becoming a millionaire. 

But NS&I delivered a blow to savers this year by announcing two cuts to the Premium Bonds prize fund rate in as many months at the end of this year.

The prize fund rate represents the average return a Premium Bonds saver would get in a year,

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

The prize fund will stand at 4 per cent in the January draw on 2 January after being cut from 4.15 per cent. 

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

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

Springall said: ‘NS&I is a trusted brand and provide 100 per cent capital security, so their bonds may still be appealing to savers with big pots who are happy to forgo higher interest rates available elsewhere.’

‘NS&I need to ensure they are on course to meet their net financing targets, so they must price their accounts accordingly. NS&I traditionally would react to any interest rate moves within the wider markets, to ensure they are not sitting head and shoulders above the competition. 

‘They can also review the premium bonds to ensure they are offering a fair prize, which can go down as well as up. With this in mind, NS&I are not immune to rate cuts, so savers do need to keep an eye on their accounts.’