'Cruel' year for savers coming to end but signs of relief for 2017

The last year has been described as a "cruel" one for savers - but 2017 could bring some relief.

The cut in the Bank of England base rate to 0.25% in August sent savings rates, which were already paying paltry amounts, tumbling further, with some providers chopping the rates on their deals by bigger amounts than the 0.25 point cut in the bank rate.

In June, before the base rate was cut, financial information website Moneyfacts said the average easy access Isa rate had fallen below 1% for the first time.

By November, there were around three savings rate cuts taking place across the market for every increase.

Rachel Springall, a finance expert at Moneyfacts, said a year ago, around two-thirds (67%) of accounts in the savings market paid 1% or more - but now only around a third (34%) do so - "showing how cruel the past year alone has been on savers".

Some current accounts - which have provided a haven for those looking for better returns on their cash - have also been made less generous or are set to become so in 2017.

In November, Santander halved the 3% maximum rate that customers could get on its flagship 123 current account to 1.5%.

When it announced the rate cut in August, Santander said the changes were due to "the market expectation of interest rates staying lower for longer".

Lloyds Bank will also cut its Club Lloyds credit interest rate from 4% to 2% in January and TSB will also reduce a 5% rate on its Classic Plus account to 3% from January.

And Halifax will drop its £5 monthly reward payment on its Reward current account to £3 in February.

Pensioners in particular have had another tough year, with many relying on the returns they get from savings to boost their income.

And plans to allow pensioners to be able to cash in their annuities from 2017 were recently ditched by the Government because consumers could not be guaranteed they would get good value for money.

Annuities give pensioners a certain guaranteed level of income, but they have been controversial in recent years due to low rates giving people disappointing incomes.

The 2015 pension freedoms mean people approaching retirement are no longer required to buy an annuity - although some may still want to do so as they will have the security of knowing they will not out-live their savings.

The annuities market has also had another difficult year.

In September, Moneyfacts said annuities were suffering their worst year on record, with low gilt yields following the Brexit vote and a significant weakening of competition in the annuity market sending annuity rates plunging.

However, despite another gloomy year, there have been some improvements for hard-pressed savers and pensioners - as well as some further of glimpses of hope on the horizon.

Ms Springall said: "Those looking to retire will find that annuities are starting to return to pre-EU referendum levels. However, it might be too early to celebrate as they are still low compared to years gone by."

She continued: "Worryingly, the market is contracting as there have been some big players pulling out of the open annuity market, with many in the industry blaming pension freedoms as the cause.

"This means that consumers will have less choice than before but it is still important for them to shop around for the best possible return."

Meanwhile, many savers can now keep all the interest they earn on their cash pots, instead of a slice going to the taxman.

In April, the personal savings allowance was launched, taking most savers out of paying any tax on their savings interest altogether.

And more than seven million people are now saving into a workplace pension as automatic enrolment rolls out - helping to head off fears that people are failing to put away money for their old age.

The recent Autumn Statement also offered some hope to savers - with a new market-leading bond set to be launched by NS&I (National Savings and Investments) in spring 2017.

The three-year investment bond will have a rate of around 2.2%. It will allow savers to put away between £100 and £3,000 and it will be available to those aged 16 or over.

Experts have pointed out, though, that a predecessor account run by NS&I, the pensioner bond, had been more generous, allowing people to save up to £10,000 at a rate of 4% for three years.

The new Lifetime Isa is also set for launch in April 2017 to help retirement savers and people saving for their first home.

People aged between 18 and 40 years old will be able to open a Lifetime Isa. The deals will give people saving for their first home or retirement a 25% bonus on up to £4,000 a year.

Lifetime Isa savings and the bonus can be used towards a deposit on a first home worth up to £450,000.

Alternatively, people can use the accounts to save for retirement and they can withdraw the savings after they reach 60 years of age.

Some pensions experts have warned, however, that savers should not see the Lifetime Isa as an alternative to saving into a workplace pension - where they get the benefit of "free" money via contributions from their employer.