Just 23 bonds beat inflation, but rates are rising | moneyfacts.co.uk

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Published: 14/02/2017
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Official figures have revealed that inflation is well and truly on an upwards march, with the Consumer Prices Index (CPI) standing at 1.8% in January. This is up from 1.6% in December and marks the third consecutive monthly rise, and means that inflation has now hit its highest level since June 2014 (1.9%). As a result, seriously few savings accounts are able to pay a rate that will match or beat it, but it isn't all bad news, as our figures show that some rates are beginning to rise…

Rate rises overtake reductions

The data shows that savings rate rises have finally overtaken reductions, the first time this has been the case in 15 months. January saw 67 rate rises compared with just 53 reductions. Despite some of those reductions being as much as 0.60%, the fact that rate rises are on the up seems to indicate a definite change of direction.

In other positive news, the number of new deals launched since the start of the year has outweighed the number withdrawn, with there being 49 new savings accounts versus 31 withdrawals. There is naturally still much more room for improvement, but the first signs of positivity are there.

Too good to be true?

Unfortunately, this hasn't had an impact on the number of deals that can match or beat inflation, as although there are signs of positivity, rates are still worryingly low. This means that just 23 of the 697 savings accounts on the market pay a rate of 1.80% or above, all of which are fixed rates over a longer term, so savers seeking easy access to their cash will have to cope with the effects of inflation.

"The surprise of rate rises and new deals outweighing cuts and withdrawals sounds all too good to be true, but that's exactly what's occurred since the start of 2017," said Rachel Springall, finance expert at Moneyfacts. "However, it's much too early to start celebrating a revival in the market, because rates are still extremely low compared to years gone by.

"Most of the new deals that have surfaced this year pay rates that are below the current level of inflation, but they can still earn a position among the best accounts – showing that providers don't need to work very hard to maintain a competitive position in the Best Buys."

Improvements needed

Any improvement is welcome in the current landscape, but it can't be denied that more is clearly needed. Unfortunately, the lack of competition means this may be wishful thinking, as Rachel explains: "The lack of rivalry among savings providers has meant brands such as NS&I have slowly crept up towards the top of the market, which has led to the inevitable decision to cut rates, which will hit millions of savers.

"Savers are clearly running out of options for an inflation-beating return, unless they lock their cash away for the long term or are prepared to place their funds in more riskier investments. A year ago savers had 118 fixed deals on the market to choose from that paid a respectable 2% or more, but this has eroded to just 11 accounts – all of which require savers to tie their cash in for at least five years.

"Despite the huge cuts over the past few years, savers might still be clinging onto the hope that the market can recover, but they would do well not to hold their breath in anticipation. Until competition heats up, savers must make do with the NS&I bond in the spring, expected to pay 2.20% for three years, and the rise of the tax-free ISA allowance to £20,000 from April.

"There is unlikely to be any other positive news for savers in the Budget, which is why they would do well to keep on top of the savings Best Buys and make sure that their accounts are still providing a reasonable return in the current market."


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