Savers have seen some improvements to the market in recent months – although experts say much of the boost has been driven by challenger banks.
During the second half of this year, the situation started looking up for savers, with the Bank of England base rate climbing from 0.25% to 0.5% in November.
Treasury-backed NS&I also announced in November that it was increasing interest rates across its variable rate product range and improving the odds for its 21 million Premium Bond customers, with the number of prizes paid out each month increasing from 2.3 million to an estimated 2.9 million.
In December, there was another boost for savers as NS&I said it was putting some fixed-term bonds back on general sale for the first time since 2009.
It reintroduced one-year and three-year Guaranteed Growth Bonds and Guaranteed Income Bonds to general sale.
But while banks and building societies have been tweaking some savings rates upwards, experts have also pointed out that not all rates have rebounded to levels seen before the base rate was lowered to 0.25% in 2016.
Charlotte Nelson, a finance expert at Moneyfacts.co.uk, said: “Whilst savers will be happy at the news that rate rises are finally being seen, they are unlikely to be jumping for joy, as the main banks have still yet to get involved in this new-found competition.”
She said: “2017 has seen some positivity finally return to the savings market with rates starting to rise.
“For example, the average two-year fixed rate bond has increased from 1.04% in January this year to 1.46% (by December).”
But she continued: “All this positivity has been mainly fuelled by the challenger banks fighting to be at the top of the ‘best buys’ and leap-frogging each other to get that prized position.”
Ms Nelson predicted the savings market in 2018 is likely to be similar to this year – “with small positive gains as challenger banks look to remain competitive throughout the year”.
Ms Nelson added: “Savers will now have to take matters into their own hands and re-evaluate their accounts to ensure they receive a decent return.”
She said those with money stuck in accounts paying less than the base rate should “vote with their feet”.
Rising living costs have also been biting increasingly large chunks out of the value of savers’ cash.
The Consumer Price Index (CPI) measure of inflation reached a near six-year high of 3.1% in November.
Meanwhile, the landmark scheme to automatically place people into workplace pensions will also take a step further next year as minimum contribution rates start to rise.
So far, take-up of the scheme has been seen as a huge success, with around nine in 10 people staying in their workplace pension rather than opting out.
From April 6 2018, the total minimum contribution will increase from 2%, including a minimum employer contribution of 1% and a 1% staff contribution, which benefits from tax relief.
The new minimum contribution rate from April will be 5%. Employers must increase contributions into their staff’s automatic enrolment pension to at least 2% – and staff contributions must also increase to make up the shortfall needed to bring the total minimum contribution up to 5%. So if the employer pays 2%, the staff contribution is 3%.
Tom Selby, senior analyst at AJ Bell, said people who are currently paying the minimum into their workplace pension from their salary need to prepare for the prospect of the level increasing threefold.
He said: “While some might be tempted to opt out due to the extra hit on their disposable income, doing this would mean missing out on the bonus of employer and Government contributions, the latter in the form of tax relief.”
From April 6 2019, minimum contributions will rise again, to 8%, made up of a 3% employer minimum contribution and a 5% staff contribution.
Source: Yahoo Finance UK