High interest rates for savers have been a welcome silver lining in an otherwise glum year for personal finances.
But as we roll in to 2023, the landscape looks set to change.
We take a bird's-eye view of the savings market and look at where the opportunities lie for better returns.
This article gives you information to help you make the most of your money, but it isn't personal advice. If you're not sure if a certain action is right for you, seek advice.
What affects savings rates?
The Bank of England (BoE) raises its base rate to try and bring inflation down. With inflation still running rampant at 10.7%, we'll likely see the base rate keep rising for a little while yet.
But as inflation is forecast to drop back to below 1.4% by the end of 2024, the BoE is likely to start reducing the base rate in the coming years.
However, banks and building societies won't wait for the base rate to fall before deciding what rates they offer. Fixed-term rates look forward. That means savings providers will look at what the base rate will be in future and reflect this in their current fixed-term offers.
The predicted base rate hike in the next six months doesn't necessarily mean better savings rates in the current market. Providers look further in the future to see where the base rate could settle.
Have fixed rates peaked?
BoE base rate hikes in 2022 have given us the highest fixed-term rates in 12 years.
But the rates on offer today aren't quite as juicy as a month ago.
The top five one-year fixed rates were averaging 4.47% in the middle of November 2022, compared to 4.27% in the middle of December 2022. Even if inflation drops to 5% in a year's time let's say, savers who want to curb the loss of value on their money need to look at current competitive rates.
5% inflation in a year's time means something which costs £10,000 today will cost £10,500 next year. People with money in accounts that don't pay interest will have lost £500.
Sitting on our hands could cost us dearly.
But it's not all gloomy. If inflation falls under 2% in 2024, the best two-year fixed terms on Active Savings that are now above 4% could help beat inflation in the second year.
So, consider how long you can afford to lock your money away for, as fixed terms normally only let you withdraw on maturity.
Easy access interest rates could continue to rise
Unusually, the near future could be brighter for easy-access savers.
Savings providers don't look as far in the future when they set easy-access rates, because they don't expect the money to be around for that long.
A year ago, the average instant-access savings account paid just 0.11%, when the base rate was at 0.25%. Now the base rate is at 3.5% – the average instant-access accounts are nearly ten times higher than last year, at 1.07%.
But this figure doesn't get close to how hard your money could be working. By relying on customer inertia, high street banks can offer savings products that work in their favour and don't help you keep up with inflation. Smaller banks and building societies compete for your money, offering better rates to keep your money working hard.
The top five instant-access accounts in December 2022 boasted an average of 2.87% and were all offered by smaller bank and building societies competing for your money.
With inflation at 10.7%, fixing what you can will do more to limit the damage than keeping money in easy access accounts. But that doesn't mean the emergency pot - savings you need to keep on hand - should be neglected.
If you're working, we recommend you keep three to six months' worth of essential expenses in an easy-access account. When you're retired, this should be one to three years' worth.
Finding a competitive easy-access rate will give you flexibility for your safety net and keep your money working hard.
Active Savings offers competitive easy-access rates which you can hold alongside your fixed-term bonds. You can have as many products as you like and switch between them in a few clicks.
Instant access products allow immediate cash withdrawals, Active Savings offers easy access products where withdrawals usually take one working day.
Limited access accounts give access your money when you like, but only a certain number of times a year without incurring a charge. The charge is usually a number of days’ worth of interest and will differ across products and providers.
Both easy and limited access accounts usually pay a variable interest rate.
Make sure your money's working hard
Regardless of the type of account, we think you should consider looking beyond traditional high street providers to save cash.
But finding better rates doesn't have to be a chore.
Active Savings lets you view consistently market leading rates from our bank and building society partners, all in one online account. And you can pick and switch your savings in a handful of clicks.
Mix and match fixed terms that range from a few months to five years, all alongside your emergency easy-access cash pot. There's no limit to the number of products you can choose.
This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.
The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.
Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).