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Inflation affecting 99% of savings accounts

Inflation affecting 99% of savings accounts

Category: Savings
Author: Lieke Braadbaart
Date: 19/09/2018

With today's figures showing that the Consumer Prices Index (CPI) went up in August, savers may be disappointed to know that less than 1% of the standard savings market can currently beat this measure of inflation. So, despite seeing the 19th consecutive month of savings rate rises, most will be losing out in real terms.

The latest Moneyfacts.co.uk figures reveal that August saw 219 rate rises compared with only 28 cuts – not surprising considering the increase in base rate seen last month, although some may have expected no cuts whatsoever because of this. Despite the many welcome increases, however, there are now just four
standard savings accounts that can match or beat inflation (on a £10,000 deposit).

"Inflation is continuing its assault on savers' cash, as less than 1% of standard savings accounts available can beat 2.70% today," said Rachel Springall, finance expert at Moneyfacts.co.uk. And the few available inflation-beating deals are all fixed rate bonds, which means savers who want their savings to outpace inflation will have to say goodbye to their funds for seven years, while a five-year bond will currently only ensure they can match August's CPI.

With 85% of the standard savings market paying less than 2% (based on a £10,000 deposit), those who don't want to lose access to their savings will be even worse off compared to inflation, and the base rate rise hasn't helped nearly enough. The below table illustrates that easy access and notice accounts increased by only 0.16% on average last month, with plenty of providers not increasing their rates by the full 0.25% and some not even having announced their plans yet.

Savings rate analysis Aug-17 Jan-18 Jul-18 Aug-18
Number of savings rate rises overall 118 129 90 219
Number of rate rises on easy access and notice accounts 9 28 19 59
Average rate rise on easy access and notice accounts 0.09% 0.21% 0.15% 0.16%
Source: Moneyfacts.co.uk

"Whether inflation is set to rise for the remainder of the year is uncertain and its future is misty due to economic uncertainties," Rachel commented. "There are also murmurings of another base rate rise before the year is out, but whether this will in turn feed the savings market and result in many more deals beating the level of inflation is highly unlikely."

There are some alternatives available to standard savings accounts that can offer better rates, such as regular savings accounts and high interest current accounts, but both these options put a limit on how much cash you can receive interest on. As always, it would be a good idea for savers to have multiple types of pots – they may even want to consider a stocks & shares ISA for the chance of better returns (although they must beware that they could also end up with less than they've invested).

"If savers have their cash languishing in an account paying a poor return, they should be proactive and switch," concluded Rachel. "Some of the best deals around are from more unfamiliar brands or are only available online. Therefore, savers who want to get a better rate should prepare to change their savings habit, especially if they favour high street branches."

What next?

To see which four fixed rate bonds can match or beat inflation, have a look at the long-term savings chart – before they disappear.

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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