Inflation Rises During October | moneyfacts.co.uk

Derin Clark

Derin Clark

Online Reporter
Published: 18/11/2020

Inflation rose again during October, which means that savers will not only find fewer savings accounts offering inflation-beating rates, but if inflation continues to rise as predicted into 2021, savers may struggle to find a rate that beats inflation.

Official statistics released today reveal that during October, the Consumer Price Index (CPI) rose to 0.7%, an increase from the previous month when it stood at 0.5%. This increase means that 227 savings accounts can now beat inflation. Of these, 161 are fixed rate bonds, 38 are fixed rate ISAs, 17 are notice accounts, seven are easy access accounts and just four are variable rate ISAs.

“Inflation-beating rates are still available in the savings market for now, but if the rate of inflation rises as predicted next year, most savers will be losing money in real terms based on today’s top rates,” explained Rachel Springall, finance expert at Moneyfacts.co.uk. “Indeed, in Q4 2021 inflation is predicted to hit 2.1%, and today the best fixed rates on the market are a five and seven-year fixed bond from Bank of London and The Middle East at 1.50% as an expected profit rate.

“There could be reluctance among savers to commit to a longer-term fixed bond today, and indeed they may prefer to have their cash closer to hand in light of the pandemic. It’s wise for savers to store some cash in an easily accessible place in case of emergencies, and an easy access account or ISA could be a good choice in this instance. Savers who may have saved up some funds with excess disposable income due to the lockdown should compare deals quickly as the top rates have moved in recent weeks.”

What are the alternatives to standard savings accounts?

The savings market has seen rates fall significantly during 2020, and with the Bank of England setting negative interest rates still a possibility, there is little hope they will rise over the coming months. So, while savings accounts remain the most secure place to deposit funds, savers may want to consider alternative options.

For example, although the initial money invested in a structured deposit account remains safe, these accounts carry the risk of the saver not earning any returns on their investments. They do, however, also offer the possibility of the saver earning higher returns than would be achieved with a savings account.

Another alternative is investing in stocks and shares. These investments are far riskier as the investor can lose their initial deposit, along with making no returns on their investments, but they also have the possibility of far greater returns.

Savers considering alternative investments to standard savings accounts should carefully consider the risks before investing. In addition to this, investments are normally only suited to long-term investors, so savers wanting to access their savings or who are only looking for a short-term savings option, would be likely more suited to a standard savings account.

For those who are willing to take on a riskier investment, it is usually advisable that they speak to an independent financial adviser first to ensure it is the right option.

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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