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2017 has certainly been an interesting year for savers, from the record-low rates at the start of the year to the base rate rise near the end. Throughout most of this, inflation has been going up as the cost of living has increased. Unfortunately, the last inflation report of the year holds more bad news, with inflation once again seeing a rise.
The latest report from the Office for National Statistics finds that the Consumer Price Index (CPI) – the most common measure of inflation – increased from 3.0% in October to 3.1% in November. As a result, there's still not a single standard savings account that can beat or even match it. It's not all bad news, though, as moneyfacts.co.uk data shows that savings rate rises have now outweighed cuts for 11 consecutive months.
Specifically, November saw 157 rate rises (including ISAs) compared with 58 cuts – and that's not all. Rachel Springall, our finance expert, has looked into how savings rates have fared over the year, and found that most averages have seen a welcome rise.
|Average Five-Year Bond||1.98%||1.67%||1.67%||2.03%|
|Average One-Year Bond||1.15%||0.95%||0.92%||1.17%|
|Average Easy Access||0.55%||0.39%||0.38%||0.47%|
|Average ISA (fixed & var.)||1.13%||0.83%||0.82%||1.07%|
As you can see in the above table, fixed rates have done particularly well, with the average five-year bond hitting 2.03% – its highest level since July 2016 when it was 2.05%. What's more, the average one-year bond has also reached its highest point since July 2016 (1.20%), standing at 1.17% today.
Variable rates, in contrast, have recovered at a much slower pace, with the average easy access rate still below what it was before the Bank of England cut the base rate in August 2016 – the average easy access rate in August 2016 was 0.55%, whereas today it's 0.47%. "There was a huge expectation that variable rates for savers would rubber-band back to what they were before the Bank of England cut the base rate in August 2016, but sadly this doesn't appear to be the case," said Rachel.
Likewise, the average return on ISAs (fixed and variable) is also falling short, standing at 1.07% today, down from 1.13% in August 2016. "It's disappointing to see ISAs as an area of neglect, particularly as these vehicles used to be seen as a first port of call for savers," added Rachel. "Today couldn't be more different, as the introduction of Government tax-saving initiatives for consumers, specifically the Personal Savings Allowance, have greatly damaged the returns and enticement of ISAs.
"[So,] whilst it is true the market has improved in 2017, most of the effort has come from challenger banks; the big high street banks seem to have been very selective on what accounts will benefit from a rise – if any."
You may be considering a fixed rate bond from a challenger bank, considering that these are the deals that have witnessed the biggest rate rises. However, Rachel points out that "inflation is still taking its toll, as savers' cash continues to be eroded by its effects, due to interest rates falling short.
"Even if a saver were to invest in the best five-year fixed bond today, paying 2.51% from Secure Trust Bank, £59 would still be lost in just one year on a £10,000 investment, as the interest fails to beat inflation, assuming the Consumer Price Index sticks at 3.1%."
Despite the eroding influence of inflation, all averages have increased compared with a year ago, so if you've been keeping your funds in a low-paying account, it will still be worth having a look at the top of the savings Best Buys – just don't be afraid to open an account with an unknown provider. With all UK banks protected by the depositor protection scheme, you have nothing to fear from these newer brands.
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