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Negative inflation isn’t enough to improve savings

Negative inflation isn’t enough to improve savings

Category: Savings

Updated: 17/11/2015
First Published: 17/11/2015

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 It is now over 6 months old so the content may be out of date.

Official figures released this morning show that inflation has remained in negative territory for the second consecutive month, with the rate standing at -0.1% for October. It means that the cost of living has once again fallen in the past 12 months, but while that may be welcome news for some households, our figures show that it might not be enough to boost savers' fortunes…

Saving rate falls outweigh the rises

Unfortunately, the data shows that rate reductions in the savings market are now outweighing rate rises for the first time since we began monitoring this area: we recorded 43 savings rate rises during October, less than half the amount seen in September (113), with only one deal posting a significant increase of 0.40%.

Disappointingly, these rises were eclipsed by the 58 rate reductions that took place over the same period – a big jump from the 29 rate cuts seen in September – with some deals falling by a massive 0.54%. The rate of inflation offers some good news, however, as at least savers won't be impacted its erosive effects, and it also (unsurprisingly) means that all of the 876 savings accounts currently on the market can beat inflation.

Of these, 708 accounts – comprised of 158 no notice accounts, 80 notice deals, 255 fixed rate bonds and 215 cash ISAs – are without restrictive criteria and open to everyone, which means that savers have plenty of choice if they want to secure a meaningful return.

Lack of positivity

Even so, this may not be enough to improve things to any extent, particularly with so many rate cuts taking place. The latest base rate announcement will hardly brighten spirits either, said Rachel Springall, finance expert at Moneyfacts, with the rate voted to remain on hold for a further month and the possibility of a rise in the near-future looking ever more unlikely.

There's no guarantee that a hike to base rate will directly influence savings rates – any link between the two has been disrupted by initiatives such as the Funding for Lending Scheme – but there was still the hope for improvement. This has now been put on hold, and "while the Government has made plans to support savers as of April next year by making the first £1,000 earned in interest completely tax-free for basic rate taxpayers, there is little positive news for savers in the meantime, and virtually no incentive for providers to start offering more enticing rates," added Rachel.

The need to act fast!

This lack of incentive means it's even more important for savers to be on the ball – when you spot a good deal, make sure to pounce on it! High street providers in particular are lacking any competitive enthusiasm and are leaving the best buy charts in a "sorry state", but challenger banks are continuing to prop up the savings market – and there are still some good rates to be found.

However, they don't hang around for long. "As savers desperately hunt around for decent returns, deals that do offer competitive rates are swiftly removed from the market due to their over-popularity," explained Rachel. "For example, Virgin Money re-issued a market-leading two-year fixed ISA deal last week, only to withdraw it just two days later. This shows just how fast consumers need to act if they want the best deals."

So why wait? If you're fed up of getting meagre returns, now's the time to look for alternatives. Check out our savings best buys to get started and see how much more you could be earning.

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.