Combating inflation: the gloves are off! - Savings - News - Moneyfacts

News

Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Combating inflation: the gloves are off!

Combating inflation: the gloves are off!

Category: Savings

Updated: 19/05/2011
First Published: 19/05/2011

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Savers could have been excused for feeling a little bit sorry for themselves at hearing the latest inflation figures, but there is a way of fighting back.

The combination of inflation that, at 4.5%, is more than double the Government's 2% target, and a sustained period of hyper-low interest rates has meant savers have faced a real challenge to find competitive accounts to house their funds.

The hunt for value in the savings market is predicted to get harder as the Bank of England has said that inflation is likely to hit 5% by the end of 2011, although it is expected to fall in 2012.

Moneyfacts.co.uk analysis shows that to beat inflation, a basic rate taxpayer at 20% needs to find a cash ISA paying a rate of 4.50% or non-ISA savings account paying 5.63% per annum.

The good news is that there are currently still a couple of options for savers keen not to have their nest eggs entirely eroded, although they will have to save at least part of their funds into a five year fixed rate ISA, both of which are operated by post.

The two options are as follows:

Birmingham Midshires 5 Year Fixed Rate ISA

  • 5.00% AER
  • Minimum investment of £500
  • ISA transfers in allowed
  • If you withdraw or transfer your money during the five year term you will forfeit some interest
  • This cash ISA can only be managed by post.

Northern Rock Cash ISA Issue 161

  • 4.50% AER
  • Minimum investment of £500
  • ISA transfers in allowed
  • If you withdraw or transfer your money during the five year term you will forfeit 180 days' interest
  • This cash ISA can only be managed by post.

Savers will have to be aware that there are annual limits on how much they can invest within an ISA – the limit for the current tax year is 5,340.

For any savings over this limit, an index-linked savings certificate from National Savings & Investments could be a perfect tonic.

The accounts track the Retail Prices Index plus an additional 0.5% and, like cash ISAs, are tax-free, making it a particularly efficient way of enhancing funds.

The certificates might not be around for too long, however – they were withdrawn last year after NS&I reached its subscription limit – so savers should act fast if they would like to take advantage.

Find the best savings rates for you - Compare savings accounts

Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

Related Articles

Just 44 savings accounts beat inflation

Inflation recorded another large jump during December, and predictably, this has had a devastating impact on the number of savings accounts that beat it, so much so that you’ll need to lock your money away if you want an inflation-beating return.

Just 47% have money in a savings account

We’re often told of the importance of saving, yet unfortunately, the message doesn’t always get through. Indeed, research shows that just 47% of those surveyed have money in a savings account, and 17% have no savings or investment whatsoever.

How much will you save this year?

Many of us have set savings goals for the year ahead, and planning to budget better and save more will be at the top of many financial resolution lists. But how much are you hoping to squirrel away? Encouragingly, many people have impressive targets.
 
Close