Saving rates beat inflation | moneyfacts.co.uk

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 It is now over 6 months old so the content may be out of date.

Derin Clark

Derin Clark

Online Reporter
Published: 13/02/2019

An increase in short-term fixed rates in the past 12 months means that savers can now find more accounts that will match or beat inflation.

The latest research from Moneyfacts.co.uk shows that the average one-year and two-year bonds have hit 1.48% and 1.65% respectively, this is up from 1.19% and 1.43% in February 2018. This means that, based on these average rates, savers can get the same rate of interest on a one-year deal in 2019 (1.48%) that they would have on a two-year bond in 2018 (1.43%).

Statistics released this week show the Consumer Prices Index (CPI) fell to 1.8% during January. As a result of this, 169 fixed rate bonds, 39 fixed rate ISAs and seven notice accounts (based on £10,000 deposit) can now match or beat inflation, and many of Moneyfacts
Best Buy one and two-year fixed bonds now pay above 2% – beating the 1.8%.

Rachel Springall, finance expert at Moneyfacts.co.uk, said:

"It's positive to see that the impact of inflation is starting to wane, breaching the Bank of England's target of 2%. At the same time, consumers who are hoping to lock into a one-year fixed bond will find the average rate has improved by 0.29% in the past year. This is a sharper rise than what we have seen on two-year fixed bonds, which have risen by 0.22% over the same period.

"One area where saves will notice a stark difference though is the ISA market, as the same assumptions for beating inflation on a short-term fixed cannot be justified. There are only a few ISAs that beat 1.8% today, all of which would require savers to lock their funds away for two years or more.

"When looking at short-term deals in the ISA market, the best one-year fixed ISA pays 1.74% from Shawbrook Bank, which is 0.41% less than the rate paid by the best one-year bond from Al Rayan Bank at 2.15% (as an expected profit rate). On a £20,000 investment, that's a loss of £82 after one year for choosing the ISA over the bond, without compounding interest.

"As savers enter a period of economic uncertainty, there may well be those choosing short-term fixed bonds to lock into a decent return over the next 12 months, and thankfully the competition among the challenger banks have made the Best Buys much more appealing."

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