Savings rate rises continue to lag behind inflation

Savings rates continue to improve, however, due to a dramatic rise to inflation, not one standard savings account can beat its eroding power. 

The Consumer Price Index (CPI) rose to 3.2% during August 2021 up from 2.0% in July 2021. This is the highest level seen since records started in 1997. There remains no single savings account that can outpace inflation. The highest cash savings rate available right now is from Atom Bank at 1.86% for a five year fixed rate bond. This is an improvement compared to 18 August 2021 when the top rate was 1.72% for a five year fixed deal. But, while rates are increasing they are lagging far behind the pace of inflation and even the best rates just prior to the start of the pandemic would not have kept pace. On 18 September 2019 the top return in the market over five-years was 2.45%. 

Those needing to save into a cash ISA face even worse news with rates here only reaching 1.50% for a five year fixed rate cash ISA. This means that savers should only use cash ISAs if they are likely to exceed their personal savings allowance and as a result could face paying tax on their interest income.

A combination of low cash savings rates and rising inflation could make investing a more attractive option for some savers. Investment returns have consistently out performed cash savings, but they do come with significantly greater risks including the loss of capital and returns are not guaranteed. In August we reported that the top five ISA unit trust funds had achieved returns over the past 12-months had seen returns of between 61% and 84%.

Savers can use an investment platform and open an account to make investments into funds and into shares on the stock market. This includes the option to invest using an ISA wrapper - savers should note the maximum investment allowed into an investment ISA is £20,000 per tax year.. Alternatively savers can look to open a specific stocks and shares ISA.