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Combating inflation: the gloves are off!

Combating inflation: the gloves are off!

Category: Savings

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

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 It is now over 6 months old so the content may be out of date.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. 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The certificates might not be around for too long, however – they were withdrawn last year after NS&I reached its subscription limit – so savers should act fast if they would like to take advantage.

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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.

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