As any saver will tell you, these are bleak times. And it could be set to get worse next year. Last month, the prospect of another drop in interest rates increased when two members of the Bank of England’s monetary policy committee, which decides on the official rate, called for an immediate cut.
It is now expected by sections of the financial markets that the rate will drop by 0.25% next year, even though it has been at rock-bottom levels for the last decade. So what should anyone who wants to make some money from their savings to do?
Stay with cash
Rates on the high street vary hugely – on a balance of £10,000, the amount of interest that it is possible to earn goes from £10 to £145. The lesson? Shop around, don’t be limited by the mainstream banks, and be sure to look at those providers that may be less familiar.
HSBC’s easy-access Flexible Saver will garner just 0.15% while Goldman Sachs’ online savings account will bring in 1.45%.
However, Rachel Springall of Moneyfacts.co.uk, warns savers to be vigilant. “[They] need to be swift to take advantage of the most lucrative rates, as these can be withdrawn, or cut, in a short space of time. The challenger banks continue to hold prominent positions in the top-rate tables and I would imagine this remains the case in 2020.
“Even if we see no base rate changes in 2020, rates on savings can change regardless.”
Fix for the future
Against this background, there could be some security in depositing money in a fixed-rate account where it can’t be accessed for a set period, but the rate remains the same no matter what the Bank of England decides. But rates on these have also been dropping. One-year deals from Atom Bank or Tandem Bank were offering 2.05% last year, but the best rates have now dropped below 2%.
Despite this, Anna Bowes of Savings Champion says they are still paying more than easy-access accounts, as once deposited you cannot normally withdraw your funds until maturity. “The best one-year fixed-rate bond is from Zenith Bank at 1.75%, whilst the best three-year is UBL at 2.20%,” she says.
Observers suggest hedging your bets by putting some money into easy-access accounts, in case rates go up, and the rest into fixed-rate bonds for any higher returns.
Bowes says that notice accounts (where you have to give the bank notice that you want to withdraw money) can also be a good way of squeezing as much interest as possible on funds that you don’t need immediately, but don’t want to tie up for longer periods. She adds: “BLME is paying 1.71% AER on its 90-Day Notice Account – so almost as much as a one-year fixed-rate bond. You can access the money with just three months’ notice. Note that notice accounts are variable rate accounts, so the rates could be cut.”
Keep it in property
Ongoing uncertainty about Brexit has meant a distinct slowdown in the UK property market. Fluctuations in supply and sales have resulted in more muted gains that many investors were used to before the 2016 vote.
“Immediately prior to the referendum, the annual growth rate of the average UK property was over 8% but, as of September 2019, fell under 1%, well below the rate of inflation. In England, in particular, the annual growth rate has steadily declined since June 2016,” says Damien Fahy of Moneytothemasses.com.
Any further uncertainty means that there could be a continuation of the same trend next year, he adds. A recent poll of property analysts by Reuters said house-price rises in Britain won’t keep pace with already-low inflation until 2021.
The Conservative majority could now result in buyers that had been hesitant to invest coming out of the shadows. As David Hollingworth of L&C Mortgages, says: “As more clarity emerges in the outlook for exiting the EU it could, potentially, bring some enhanced demand from buyers that had been biding their time. For example, there may be some sitting on their hands while waiting to see if any changes to stamp duty materialise in a budget.
“However, any return of confidence is likely to be gradual, so we should probably expect to see more of the same in the coming year.”
Those who want to put their money into property funds should tread cautiously, warns Fahy. “Investors may be tempted by commercial property funds but beware of those investing directly into physical property, as opposed to the shares of property companies.
“We’ve already seen the M&G Property Portfolio shut its doors as investors rush to withdraw money from ‘physical’ property unit trusts, as they did in the aftermath of the Brexit referendum. Other UK ‘physical’ property funds are likely to follow, which means investors could face being locked into a fund potentially dwindling in value in 2020.”
What returns can be made from investing in UK equities depends on how Brexit plays out. Moira O’Neill from Interactive Investor, an online investment service, says it makes sense for investors to take a global approach and not limit themselves. But there is still money to be made in UK shares, she says.
“Much of the prospects for the UK will hinge on Brexit. A customs-union type Brexit may be positive for UK-focused companies, including many in the FTSE 250 or smaller companies including Aim. The TB Amati UK Smaller Companies Fund and Henderson Smaller Cos Investment Trust may benefit. The FTSE 100, in GBP terms, could lag in this scenario. But there’s still so much potential for continued uncertainty, whatever the result of the election, diversification may well continue to be the best policy.”
For those who want to spread their risk outside the UK, there are “vast opportunities” says O’Neill.
“Investors should arguably be looking for companies with strong balance sheets in fast-growing markets – and given that the UK is just one tiny country, by law of averages the lion’s share of the opportunities are more often than not going to be overseas.”