Latest figures out this week show that CPI inflation increased in July, for the first time since November last year. Computer games and transport fares were cited as key contributors to the rise from 2.40% to 2.50%, offset by falls in the cost of clothes and footwear.
Still above the Government’s 2% target, inflation continues to put pressure on savers as there are few accounts that beat it. Thankfully some do, albeit for longer terms or smaller deposits but it is still well worth improving your rate to try and minimise, if not eliminate, the effects of inflation.
It means that although, in real terms, you may be losing money, the effects will be far less severe than leaving your money languishing in an appalling account such as HSBC's Flexible Saver, paying a shockingly low 0.05%.
To put this into context, if you deposit £50,000 into an account paying 0.05%, it would have fallen to just £44,303 in real terms over five years, assuming an inflation rate of 2.50%.
If you were to choose the best easy access account available today, paying 1.40%, whilst the real value of your money would still be lower, it would be worth £3,071 more, at £47,374.
With rates from notice accounts and fixed term bonds at a two year high, even more interest can be earned, to help slow down the erosion of your cash.
In fact, if you choose the best five-year rate available today, it would be worth around £50,490 in real terms, so will have kept up with and beaten inflation, assuming that inflation remains at the current level or lower for the rest of the term.
And with a number of longer-term bonds currently paying more than inflation, assuming CPI does start to reduce downwards on a longer-term basis, you know that at least some of your savings pot will keep its value in real terms for the majority, if not the whole term.
Currently there are 22 accounts that match or beat inflation, with the shortest term being four years - plus there is a handful of high interest paying current accounts. More details of all of the accounts that match or beat inflation are listed in the table below.
A rise in inflation could mitigate the recent gain following the rise in the Bank of England base rate, especially when so few providers are increasing rates by the full 0.25% and some aren’t raising rates at all.
This does of course mean that savers still need to act to try and mitigate the eroding damage of inflation on returns. Leaving your money in an appalling account, especially those accounts with the high street providers, will see your money, in real terms, shrink frighteningly fast.
Rates correct at 16/08/2018
If you need any help with finding the accounts that are most suitable for your needs, please call us on 0800 011 9705 to speak to one of our expert savings specialists.
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