Money Insider: Stay buckled up as roller coaster ride isn't over yet

As we approach the Christmas holidays, it's a chance to relax and unwind with friends and family. For many people it will be a temporary but welcome respite from what has been a very difficult year, often having to cut back in order to balance the household finances.

Whether you're an individual, run a small business or are part of a FTSE listed company, from a financial perspective 2011 has, in the main, been a year to forget.

Almost four years on from the banking crisis, the UK population is now paying the price for a decade-long credit binge that started in the early nineties.

In a year where unemployment hit a 17-year-high with 2.6 million now out of work, where inflation has been running at two and a half times the official target and fuel, food and energy costs have soared, it's no wonder people have cut back on spending, resulting in some high-profile retailers going to the wall.

On the personal finance front it's been something of a mixed bag, with borrowers enjoying some ultra-low rates at the expense of savers who have for the third year running struggled to find a decent return.

The double misery of high inflation on top of a low interest rate strategy from the Bank of England's monetary policy committee has meant for much of the last year it has been impossible for customers to find a savings account paying a rate high enough to protect the spending power of their nest egg.

Increasing concerns regarding inflation led to a number of providers launching index-linked savings products, and while these may have looked attractive during the latter part of this year, there are concerns that a sharp fall in the cost of living next year will soon take some of the shine off.

Although base rate remained stuck at 0.5 per cent all year, a renewed appetite for retail savings balances means that some rates have ended the year slightly higher. With fixed-rate savings bonds there has been little change in rates for the longer terms of four and five years, with the best returns currently 4.3 per cent from Halifax and 4.7 per cent from krbs respectively.

For shorter-term, fixed-rate deals the news has been more positive, with one-year rates increasing from 3.25 per cent to 3.6 per cent and the two-year best-buy from 3.65 per cent to 4 per cent.

On 1 November, the Junior ISA (JISA) was introduced, giving an annual £3,600 tax-free allowance to savers under 18 years of age.

The JISA replaced the Child Trust Fund (CTF), and although the tax-free allowance was trebled from £1,200 to £3,600, the earlier decision by the Coalition Government to scrap the free £250 voucher scheme was seen as a short-sighted move.

With families facing their toughest financial challenges for years, there are many parents who would love to set money aside for their youngsters but wouldn't even scratch the surface of a £3,600 allowance, and without any incentive on offer are unlikely to sign up for a JISA.

On a more positive note, if you had 20 per cent or more equity in your home and a good credit record, you'll have been able to choose from the lowest mortgage rates available in more than 20 years. Lenders were falling over themselves to maintain their share of business in a subdued mortgage market which led to some excellent deals.

It was a similar situation in the personal loans market where a battle between Sainsbury's Finance and Nationwide Building Society pushed down the cost of unsecured borrowing, with the latter at one stage offering loans of £7,500 at 6.1 per cent APR, its lowest-ever rate.

The battle for current accounts reached a new level during 2011 too, with Santander offering up to £300 and The Co-operative bank £200 as cash incentives to those prepared to switch.

For the banking industry as a whole, it's been an awful year when it comes to negative publicity, payouts and fines.

In May, the British Bankers' Association decided not to appeal against the High Court's payment protection Insurance (PPI) judgment.

The financial implication to the banks was staggering, with Santander setting aside £731m, Barclays £1bn and Lloyds TSB £3.2bn to meet PPI claims.

The Financial Services Authority also came down hard on the banks, handing out fines of £10.5m to HSBC, £7.7m to Barclays, £6.3m to Coutts and £3.5m to Bank of Scotland during 2011.

With the Government's relentless austerity drive set to cause more misery on the jobs front and the uncertainty surrounding the eurozone crisis giving increasing cause for concern, it's already clear that families need to stay "buckled up" as the bumpy ride on the economic roller coaster is far from over.

Andrew Hagger – Moneynet.co.uk