CPI at 15-mth high, but savers get cold shoulder - Savings - News | moneyfacts.co.uk


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CPI at 15-mth high, but savers get cold shoulder

CPI at 15-mth high, but savers get cold shoulder

Category: Savings

Updated: 12/04/2016
First Published: 12/04/2016

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 It is now over 6 months old so the content may be out of date.

Official figures from the Office for National Statistics (ONS) show that inflation rose to a 15-month high in March, with the rate of CPI standing at 0.5%. This marks an increase of 0.2% from February's rate of 0.3%, and is the highest seen since December 2014 (when it also stood at 0.5%), but it remains well below the Bank of England's 2% target.

It's predicted to remain below 1% for at least the next year, and it'll come as welcome news for savers, as their funds won't be greatly impacted by inflation and its corrosive effects. In fact, our figures show that the majority of the 811 savings accounts currently on the market (630) can beat or match inflation, and of these, 580 (92 no notice, 58 notice, 232 fixed rate bonds and 198 cash ISAs) are without restrictive criteria and open to all.

However, that's where the good news ends, as our figures also reveal that the savings market is still being hit with dramatic rate cuts – with rate reductions having now outweighed rate rises for six consecutive months.

Cuts lead the way

The figures show that Moneyfacts recorded just 18 savings rate rises in March, and disappointingly, rate reductions over the same period completely overshadowed this figure. In fact, the number of rate decreases over the month hit 123, which means that a whopping 87% of rate changes were cuts.

As a result, savings rates in general are still falling, with the average one-year fixed rate bond (for example) dropping to a record low of 1.25%, down from 1.42% a year ago. "Providers are constantly reducing rates, which has created a race to the bottom of the best buy tables," explained Rachel Springall, finance expert at Moneyfacts. "Savers must therefore be quick to grab the best deals, particularly if they have their heart set on a smaller mutual, whose deals can quickly become oversubscribed."

No joy for ISA savers

Unfortunately, there's little good news for those seeking a home for their 2016/17 ISA allowance, either. This time of year usually sees savers turn to ISAs as they seek a tax-efficient safe haven for their cash – something that could arguably be less important for many now that the Personal Savings Allowance (PSA) is in force – but even these accounts have not been left unscathed by rate decreases, with 40 cuts taking place over the last month compared with just two rate rises.

Nonetheless, these vehicles are still a great addition to any saver's portfolio due to their flexible nature. Remember, too, that cash saved in an ISA will be tax-free for life, and if interest rates were to rise, your entire pot would still be covered by this tax-free wrapper, which may not be the case with the PSA.

The need to shop around

There's still a way to make sure you get the best returns possible, too – and that's by shopping around. "Savers are very likely to be frustrated by the current state of the savings market, and with 81 easy access accounts paying 0.50% or less – which represents 48% of the easy access market – the need for savers to review the interest they earn has never been so important," said Rachel.

In fact, it's possible to earn over twice as much as the average if you opt for the market-leading easy access deal offered by RCI Bank UK, which currently pays 1.45% yearly. Or, if you want an alternative to a savings account but still want easy access to your money, why not investigate interest-paying current accounts? Some of them pay up to 5%, and the Current Account Switch Service makes it easier for people to change their current account, too, so now's a good a time as any to decide to switch to a more cost-effective deal.

"Until the savings market starts to lift and stops giving savers the cold shoulder, consumers will have to make do with what's left," Rachel concludes. "Those looking for a reasonable return on their money will need to work hard to keep on top of the best deals and snap up the top rates that surface."

What next?

Compare the best savings accounts

Consider interest-paying current 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.