The latest official inflation figures, released this morning, show that the Consumer Prices Index (CPI) fell to a record low of 0.5% in December. A significant drop from November's rate of 1%, it marks the 13th consecutive month of remaining at or below the Bank of England's 2.00% target and matches the lowest rate ever set in May 2000.
Despite a sub-1% rate being widely anticipated, such a sharp drop came as something of a surprise. It means Governor of the Bank of England Mark Carney will have to write a letter to the Chancellor to explain the situation and how he intends to rectify the issue, with the large drop in oil prices thought to be the catalyst behind such a dramatic fall in inflation.
But, even though the announcement could make economists a bit anxious, it's good news for savers – it means there are now 510 savings accounts that will beat inflation! It's a huge increase of 145 from last month when 365 could do the same, and means there's now plenty of choice for savers seeking inflation-beating returns and real profit.
Moneyfacts' calculations show that, in order to counter the effects of tax and inflation, a basic rate taxpayer will need an account that pays just 0.63% per annum (or 0.83% for a higher-rate taxpayer) to secure measurable returns – so find an account that pays above this level and you'll genuinely have more money left in your pocket.
The 510-account total is spread across both the ISA and non-ISA market, with 331 non-ISA accounts (213 fixed bonds, 44 notice and 74 no notice accounts) and 179 cash ISAs – almost all of the 200 available – offering the necessary rates. Look back a year ago and you'll see how quickly things have improved, too. Last January, inflation stood at 2% and a basic rate taxpayer needed an account paying at least 2.50% to counter the effects, and there were only 77 that could do it. Now, you've got a full 433 more!
However, despite the clear rise in the number of inflation-beating products, it's not all good news. It may be easier for savers to preserve the value of their savings, but after years of high inflation and low rates, the long-term effects are still being felt – calculations show that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £8,755 today, a drop of 12.45%.
Savers still aren't getting exceptional returns, either, with 0.63% hardly setting the world on fire. Add to that the fact that the majority of average rates are still falling – the average ISA, for example, paid 1.64% a year ago, but it's fallen to 1.45% today. Inflation-beating it may be, but the drop can't be denied, and it won't give you huge returns.
Sylvia Waycot, editor at Moneyfacts.co.uk, commented: "Inflation may be falling, but thanks to the paltry interest that has plagued the savings market for so long now, it is going to take years before the average saver feels the benefit of real spending power from their returns.
"Any saver who deposited £10,000 in an average account five years ago will find that, while they still physically have £10,000, it is worth much less today. Over 60 months the loss equates to around £20 per month, leaving you with £1,200 less bang for your buck!"
That's why it's so important to do your research when choosing the right savings account for your needs, and be prepared to lock your money away if you want the best returns possible. Fixed rate bonds tend to offer the highest rates if you want to save in cash, or for those with a slightly higher risk appetite, what about stocks & shares ISAs? There's always the risk that you could end up with less than you put in, but with the potential for better returns, some savers may find the trade-off worth it.
Ultimately, it comes down to your risk appetite and your savings goals, but anything you can do to preserve the value of your hard-earned cash will be beneficial. Ms. Waycot added: "Inflation has hit a new low, and although this helps today's savings interest go further, previously high inflation over a number of years has left its mark – not to mention misery." So, always be on the hunt for the best rates so you can secure real returns from your cash, and hopefully you'll have more bang for your buck in future.
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