Inflation rises to 0.7% - what does this mean for savers?

The Consumer Price Index (CPI) increased to 0.7% in January 2021, up from 0.6% the previous month, mainly due to higher food prices and household goods, it was revealed today.

This announcement will come as a disappointment to savers as it means that there are now 122 savings accounts that can match or beat inflation*. Of these, there are two easy access accounts, two notice accounts, two variable rate cash ISAs, 24 fixed rate ISAs and 92 fixed rate bonds.

In addition to this, there is the possibility that inflation will continue to rise this year, which could see savings deposited into long-term fixed savings accounts erode over time, especially if the Bank of England’s target inflation rate of 2% is met. Rachel Springall, finance expert at Moneyfacts.co.uk, added: “Inflation is predicted to climb to 2.1% during Q1 2022, and right now not one standard savings account could beat this, nor the Government’s target of 2%. The top rate deal on the market today stands at 1.50% on a five-year fixed rate bond as an expected profit rate from Gatehouse Bank. In real terms, savers’ cash would depreciate based on those levels.”

As such, savers concerned about the long-term impact of inflation on their savings may want to consider their options carefully before depositing funds into a long-term savings account.

An option for long-term savers could be investments, but these are often a much risker option than savings accounts as interest is usually not guaranteed and some investments have the added risk of the investor losing their initial deposit. Structured deposit accounts, for example, guarantee the security of the initial investment but do not guarantee that the investor will make any returns on their investments – more information about these types of investments can be found on our structured deposit page.

Meanwhile, stocks and shares ISAs can offer investors better returns than structured deposit accounts, but have the risk of the investor not only earning no return on their investments, but they can also lose their initial deposit – more information can be found on our stocks and shares ISA guide.

Due to the risky nature of investments, those considering this option may want to consider speaking to an independent financial adviser to discuss the best options for their appetite for risk, saving goals and personal circumstances.

* based on a £10,000 deposit.