The landscape of UK savings has undergone significant transformation in recent years.
Since the pandemic, UK savings rates plunged to historic lows. Now, as rates recover, financial advisors face new challenges and opportunities in guiding clients. This article traces that trajectory and outlines strategies for wealth preservation in today’s climate.
Tracking the Decline and Recovery
Extended Low-Rate Era
Post-2008 policies and Covid stimulus kept base rates near zero, squeezing savers’ returns.
2023 Inflection Point
Bank of England hikes to 5.25% reignited competition among banks, driving up savings account yields.
Why Rates Are Rising
Base Rate Hikes
Higher official rates aimed at cooling inflation have flowed through to deposit products.
Inflation Pressures
Consumers shift from equities to cash to safeguard purchasing power amid rising costs.
Bank Competition
Institutions offer attractive fixed-term and ISA rates to attract deposits and bolster liquidity.
Advisor Challenges
Managing Expectations
Nominal gains may not keep pace with inflation, requiring clear client communication.
Portfolio Rebalancing
Incorporating higher-yield cash without undermining long-term growth targets is delicate.
Regulatory Scrutiny
FCA rules demand transparent advice on product costs and benefits.
Advisor Opportunities
ISA Renewed Focus
High ISA rates drive demand—advisors can reintroduce tax-efficient wrappers.
Short-Term Preservation
Fixed-term deals offer risk-averse clients an alternative to volatile markets.
Building Trust
Clear comparisons of easy-access vs fixed-term options enhance client confidence.
Key Strategies for Advisors
Assess Risk Appetite
Balance cash allocations with growth assets based on client objectives and tolerance.
Maximise Tax Efficiency
Utilise ISAs and Personal Savings Allowance to shield returns from tax erosion.
Monitor Inflation
Combine cash holdings with inflation-linked bonds or index investments for protection.
Navigating the Path Forward
Higher savings rates create a pivotal moment to revisit client strategies. By staying abreast of product innovations and keeping a holistic view of planning, advisors can help clients and themselves thrive as market dynamics evolve.
