Inflation turns negative – and savers get a boost! - Savings - News |

News News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

Inflation turns negative – and savers get a boost!

Inflation turns negative – and savers get a boost!

Category: Savings

Updated: 13/10/2015
First Published: 13/10/2015

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 It is now over 6 months old so the content may be out of date.

The news that inflation has returned to negative territory may not be welcomed by economists, but it certainly will be by savers – and if you add in the fact that savings rates are edging up, you've got even more to celebrate!

Signs of improvement

Our figures have revealed definite signs of improvement in the savings market, with competition continuing to pay off. In fact, we recorded 104 savings rate rises during September, with some increases being as high as 0.45%, dwarfing the 28 rate reductions that took place over the same period.

As a result, the best one-year fixed rate bond has increased from 1.90% a year ago to 2.10% today, and much of this improvement has been driven by challenger banks. Indeed, just about all of the top rates in the market come from challengers – the one-year bond rate is no exception – and if you take a look at our best buys, you'll see a distinct lack of high street names.

"The boost to certain sectors of the savings market is providing a well-needed lifeline to many savers who have been struggling in recent times," said Charlotte Nelson, finance expert at Moneyfacts. "However, despite the increased presence of competitive new brands, it is shocking to see the desertion of high street providers from the Best Buys.

"Savers now have more opportunity to achieve a higher rate of return since the Funding for Lending scheme decimated the savings market, but they must look away from the more traditional providers to secure the best rates." Looking closer at the rates on offer highlights this further – for example, the average easy access account from high street providers pays just 0.61%, but challenger banks offer a much better average rate of 1.08%. So, is it time you gave challengers a go?

Make the most of inflation

In even better news, the fact that inflation fell back to -0.1% during September means that absolutely all of the 902 savings accounts on the market will be able to beat it! Of those, 730 (158 no notice accounts, 83 notice versions, 268 fixed rate bonds and 221 cash ISAs) are without restrictive criteria and open to everyone, so you've got plenty of options if you want to secure inflation-beating returns.

Essentially, negative inflation means that the cost of living is now lower than it was this time last year – led by a smaller than usual rise in clothing prices and the falling cost of fuel, according to the Office for National Statistics (ONS) – but the rate hasn't changed much in recent months.

In fact, it's been hovering around the zero mark for all of 2015, and was last negative in April. While the latest drop means that the prospect of a rise to base rate isn't any closer, there's no guarantee that an increase would result in higher savings rates, anyway, so all the market can hope for is an ongoing boost to competition – and if you really want to benefit, you'll need to be proactive!

"All accounts on the market now beat the rate of inflation, but this is no excuse for savers to rest on their laurels," added Charlotte. "Many of the main brands are using savers' reluctance to switch to their advantage, which allows poor rates to remain.

"Savers therefore need to vote with their feet, moving to the new challenger brands, which offer the best chance for achieving a market-leading rate. For example, the top paying two-year fixed rate bond is currently from Paragon Bank, paying 2.40% yearly. Santander, on the other hand, offers just 1.00% – a massive 1.40% less."

Given the potential returns on offer, it makes a lot of sense to consider these lesser-known brands. The fact that you may not have heard of them shouldn't put you off, because as Charlotte points out, it's relatively easy to check whether these new savings providers are protected by the Financial Services Compensation Scheme (or a European equivalent), so there's little to be nervous about.

But, don't wait too long – rates can fall just as quickly as they rise, so make the most of the market by grabbing a great deal while you still can!

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.