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

After a huge upward movement in 2023, savings interest rates fell in 2024.

Savers can still find interest rates of 5 percent, but experts say the best savings rate will drop below 4 percent by 2025.

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

But with the Bank of England forecast to make two to four cuts next year, it is likely that savers will see their interest rates fall as a result.

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

Savings interest falls below 4%

Average rates for easy access and cancellation 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.

According to interest rate monitor Moneyfacts Compare, the average easy-access account now pays 2.9 percent interest, while the best one-year solution pays 4.19 percent.

James Blower, founder of the website Savings Guru, said: ‘The Bank of England predicts four cuts to the base rate in 2025, taking rates down to 3.75 percent by the end of 2025.

“Assuming this happens, the easily accessible best buys will fall to around 3.6 percent by the end of next year.

‘Easy Access Isa rates could be slightly higher – around 3.8 per cent – 3.9 per cent – ​​as we see increasing competition from non-bank providers in this area.

‘I expect that fixed rates will be more uniform than is currently the case, where the best rates are on the shortest terms and the lowest on longer terms.

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

“I expect the best one-year interest rates to be just under 4 percent at the end of 2025, but the best five-year interest rates at that time to be around 3.8 percent.

Rachel Springall, financial expert at Moneyfacts Compare, said: ‘There are expectations that interest rates will fall next year as persistent inflation calms down.

‘This will be bad news for savers as we could see several cuts to the Bank of England’s base rate, which is usually passed on to variable savings accounts relatively quickly.

‘Fixed rate bonds have fallen in value in recent months and may fall further at the start of 2025, but there will be challengers to buck this trend if they need to attract deposits for their future borrowing.’

Another Isa rush is in the pipeline

Since the start of the tax year on April 6, 2024, Isas have seen record amounts of money flowing in. In April itself, savers funneled £12.3 billion into Isas.

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

But it does mean that millions of savers will now have to pay savings tax on their pots, possibly 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 get a £500 deduction. Taxpayers with an additional rate will not receive a PSA.

Savers use tax-efficient Isas to combat this, as interest earned on money stored in an Isa is completely tax-free.

Blower said: ‘Isas saw record amounts coming in in April 2024 and April 2025 is likely to be strong again – we often see a slowdown on Isas with savers getting hit with a tax bill and then remembering to use them and I think that will happen next April .

“However, interest rates will be lower than in April 2024 and therefore I think it will be a strong month, but not surpass the April 2024 high.”

Competition between non-bank Isa providers will continue into 2025 and more providers will enter the market before the end of the tax year, Blower added.

“These use savings as a cheap acquisition cost to enter the market, so they overpay to attract savers because this is more cost-effective for them than paying for acquisition through traditional marketing channels.”

Anna Bowes, savings expert at The Private Office, says: Cash Isas are likely to remain popular into 2025 as savers try to shield as much of the interest they earn from the tax authorities as possible.

‘Even though interest rates have fallen slightly from last year’s highs, just £25,000 of cash earning 4 per cent will exceed the £1,000 personal savings allowance.’

Rachel Springall said: ‘Cash Isas are likely to become increasingly popular among savers at risk of exceeding their personal savings allowance, so it will be interesting to see how that market copes with potential demand in 2025.

Even more misery for NS&I savers

More than 24 million people own Premium Bonds in the hopes of one day winning big and possibly becoming millionaires.

But NS&I has dealt savers a blow this year by announcing two reductions in the premium rate for Premium Bonds in as many months at the end of this year.

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

The Treasury-backed bank had not even applied the reduction in first prize funds to the December draw before announcing another reduction from January 2025.

The prize money in the January draw will be 4 percent on January 2, after being reduced from 4.15 percent.

Blower said: ‘Premium Bonds will likely continue to fall with the market, but I think their most recent cut (to 4 percent) was poorly timed and they will fall more slowly than the rest of the market to get more in line.

‘A lot will also depend on the target that NS&I receives for the 2025/26 financial year, which starts for them on April 1, 2025.

Springall said: ‘NS&I is a trusted brand and offers 100 per cent capital security, so its bonds can still be attractive to savers with large pots who are happy to forego the higher interest rates available elsewhere.’

“NS&I needs to ensure they are on track to meet their net funding targets, so they need to price their accounts accordingly. NS&I would traditionally respond to interest rate movements within the broader markets, to ensure they are not head and shoulders above the competition.

‘They can also assess the premium bonds to ensure they offer a fair price, which can go down as well as up. With this in mind, NS&I is not immune to interest rate cuts, so savers should keep an eye on their accounts.’