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Inflation unchanged, but savings rate cuts persist

Inflation unchanged, but savings rate cuts persist

Category: Savings

Updated: 13/09/2016
First Published: 13/09/2016

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 It is now over 6 months old so the content may be out of date.

The UK's inflation rate remained unchanged in August, official figures from the ONS show, with the rate of CPI standing at 0.6%. This went against many economists' predictions – it had been forecast that the rate would rise to 0.7%, with prices expected to have crept up following the effects of the weak pound. But while this is undoubtedly welcome news for consumers, it'll come as little consolation to savers struggling to make healthy returns.

Relentless rate cuts

Our data shows that 459 of the 661 savings accounts currently on the market can beat or match inflation, and of these 430 (48 no notice accounts, 37 notice, 203 fixed rate bonds and 142 cash ISAs) are without restrictive criteria. While this means that most savers should have little to worry about in terms of savings erosion, that may not be the case for easy access and notice account savers – rates have plummeted following the base rate change, and as the figures show, there are now relatively few variable rate accounts that provide a return above inflation.

Not only that, but the market is being continually decimated by rate cuts: our figures show that rate reductions have now outweighed rate rises for 11 consecutive months, with August officially becoming the worst month this year for cuts. Indeed, we recorded a mere three savings rate rises during the month, while a staggering 388 reductions were recorded over the same period; this translates to around 130 cuts to every rate rise, with some deals falling by as much as 1.30%.

No end in sight

Rachel Springall, finance expert at Moneyfacts, said that "savers are clearly facing challenging times", but warns that there could be more bad news to come: "The latest decision to drop the bank base rate and the impact of Government lending initiatives will continue to push rates lower still – there is no end in sight. Providers are lacking an appetite for savers' deposits thanks to these initiatives, which are not likely to be reversed any time soon.

"Some of the cuts made during August were well over what was initially expected, with some deals cut by as much as 1.30% for new customers – over five times the base rate cut. These higher cuts have not gone unnoticed, as the Financial Conduct Authority (FCA) is to investigate whether lenders are passing on the base rate cut to their borrowers, as well as what cuts are being made to savings rates."

Unsurprisingly, these devastating cuts have pushed savings rates to new lows. For example, our figures show that the average five-year fixed rate bond has fallen from 2.64% to 1.66% in just one year, while the average easy access cash ISA has fallen from 1.12% to 0.82% in the same period. These are huge reductions, and as a result, confidence in the saving market is understandably diminishing.

Savings deterrent

The combination of record low savings rates and an uncertain economic environment means that more people are spending rather than saving, with continued cuts acting as a clear deterrent to savers. There are fears that some may even consider investing their cash in riskier places, and if you're one of them, just make sure you're aware of the dangers involved (for example, if you're considering a stocks & shares ISA, make sure you're comfortable with the fact that you could get out less than you put in).

Unfortunately, it isn't just rate cuts that are causing distress among savers either: Rachel explains that some of the best deals have cruelly been withdrawn entirely so that providers can cope with demand. "A total of 20 top-10 deals have vanished since the start of August," she said, "which is why it's crucial for smart savers to be even faster at grabbing a decent deal."

It may be looking dire, but don't turn your back on traditional savings accounts just yet! Their rates may be falling but they're still a far safer place to put your cash than some other forms of investing, and if you spot a good deal, just make sure to act fast!

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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.