Inflation has ramped up yet again, hitting 2.7% in April, a significant jump from the rate of 2.3% recorded in March and the highest seen since September 2013. Not only does this mean you may be feeling the pressure on your wallet, but savings returns are now entirely non-existent, with absolutely no cash savings account on the market able to pay a rate that even comes close to inflation.
Our data shows that, out of the 753 standard savings accounts on the market, not one of them offers a rate of 2.7%, with the closest competitor being a 2.50% bond from BLME – but you'll need to lock your money away for seven whole years for the privilege. Slightly better news is that the number of rate rises has outweighed the number of reductions for the fourth month running, with 68 savings rate rises recorded in April compared with 37 cuts.
Unfortunately, rates haven't risen to an inflation-beating extent, which means the only option if you want to secure a real return is to go for a regular savings account – which come with their own restrictions – or to consider an alternative investment.
What about stocks & shares ISAs? After all, the average return on a cash ISA over the past year (across both fixed and variable rates) was just 0.97%, while figures from Lipper show that the average stocks & shares ISA returned growth of 16.5% over the same period – which means the difference in return on a £10,000 investment is an impressive £1,553 (approx.).
It's clear to see why the latter is worth considering, particularly given that inflation is set to continue rising – it's already well above the Bank of England's 2% target and has even exceeded its latest expectation, as the Bank predicted that it wouldn't reach 2.7% until the end of the year. This means that real returns are going to be even harder to achieve going forward, which is why savers may want to look beyond traditional cash savings.
"As inflation is expected to rise well beyond its target, it will be increasingly difficult for consumers to get a real return on their investment if they remain invested in cash," said Rachel Springall, finance expert at Moneyfacts.co.uk. "To ride out the storm, now may well be the time for these savers to consider alternative investments, such as stocks and shares.
"Savers are unlikely to see a significant improvement in the cash savings market for quite some time, and the only indication of when the Bank of England may raise interest rates isn't currently expected until we have left the EU at the earliest. In fact, even when base rate does rise from its record low of 0.25%, there is no guarantee that cash savings rates will improve overnight. Consumers will need to be savvier than ever with their cash if they want to see a decent return."
One way to do that is to opt for different savings products to suit different goals. Lifetime ISAs, for example, "can not only be useful to those eligible to build a deposit for a first home, but they can also be an extra pot for use in retirement, and the Government bonus of 25% is worth taking advantage of," said Rachel.
If you do decide to invest your cash into investment funds, make sure you're on the ball. You have to be vigilant of fund management charges and should keep in mind that the value of your investments can go down as well as up, and remember that past performance is no guarantee of future returns.
"Those customers concerned about the risks or confused by the thousands of funds on offer should seek advice and ensure they are happy with their risk portfolio before they invest," concluded Rachel. "Whatever they decide to do, typically saving little and often and over the longer term is a reasonable goal to give the pot time to grow."
Compare the best savings rates to find an account that pays as close to inflation as possible – but bear in mind that you may have to lock your money away for a few years to do that, and even then, you won't secure inflation-beating returns. Regular savings accounts could be a good option for those who don't have a lump sum to invest, but if you do, it may be worth considering stocks & shares ISAs, provided you're comfortable with the risk. Find out more about them by reading our guide.
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.