The day before, the Consumer Prices Index (CPI) measure of inflation was announced - 3.4% in the 12 months to February, down from 4% in January. This was lower than expected, and at its lowest level since September 2021 when it was 3.1%. Of course, as we have to keep reminding ourselves, this doesn’t mean that prices are falling, it simply means that the cost of things are rising a little more slowly. Certainly a lot slower than in October 2022, when CPI inflation hit 11.1% - the highest level in 41 years.
That said, depending on your lifestyle, there may actually be some items that are in your inflation basket that have fallen in price. For example, although the rising cost of bread has slowed from 2.1% in January to 1% in February, which means the price is still rising a little, the price of butter and jam has been falling! And with the price of milk falling too, it looks like breakfast is a pretty inflation busting meal right now!
The main downward drivers of CPI have been an ongoing slowdown in the rising cost of food and restaurants & cafes – the latter helped by a slowdown in the prices of some alcoholic drinks such as gin and whiskey.
Motorists are also seeing cheaper prices at the pumps, as the average price of petrol rose by 2.3p per litre between January and February 2024 to stand at 142.2p per litre, but down from 148p per litre in February 2023.
Diesel prices rose by 3p in February to stand at 151.3p, but down from 169.5p in February last year.
The ONS stated: “These movements resulted in overall motor fuel prices falling by 6.5% in the year to February 2024, compared with a fall of 9.2% in the year to January”.
Core inflation, which excludes the more volatile energy, food, alcohol and tobacco, rose by 4.5% in the 12 months to February 2024. But this is down from 5.1% in January.
Of course, lower inflation means that once more there is greater expectation for the base rate to be cut and traders are now pricing in a 63% probability of a 0.25% rate cut in June. However, the Bank of England has indicated that it cannot start cutting rates yet, given stubbornly sticky growth in services prices and wages, warning of the possibility of inflation remaining higher for longer.
What should savers do?
The good news is that whilst it feels like savings rates may have peaked recently, the top rates available have been pretty stable. So, this combination of stable savings rates with a drop in inflation means that there are many accounts available that are paying an interest rate that is higher than the current level of inflation, even if you now pay tax on your savings interest.
The top easy access account is paying a gross rate of 5.10% at the moment. After the deduction of 20% tax, the rate falls to 4.08%, but that rate still beats the CPI level of inflation which has fallen to 3.4%. Of course, that rate is variable, so could well start to drop once the base rate does, so if you can afford to tie some cash up, now could be a good time.
The top 1-year bond is paying 5.26% - which is 4.21% after 20% tax. And although longer term bonds are paying less, this is a clear indication that the market expects rates to start to fall soon, so locking in now for longer at a lower rate could see you earning more in the long run – and if inflation continues to fall, you could hedge against inflation for the duration. The top 5-year bond is paying 4.55%, which is 3.64% after 20% tax – still higher than CPI.
And, don’t forget that there is a £20,000 ISA allowance, which can shelter your savings from the taxman. The top easy access ISA account is paying 5.15% tax free/AER with app-only and new provider, plum, whilst the top paying 1-year cash ISA is paying 5.09% with Castle Trust. There is also the Virgin Money 1 Year Fixed Rate Cash ISA Exclusive Issue 11 which is paying 5.25% but you need to hold or open a current account with Virgin to be eligible – although you don’t need to switch current account or set up any direct debits. The top 5-year ISA is with UBL paying 4.16% tax-free.
Of course there are still a number of accounts that are paying less than inflation. Whilst closed to new business, the Virgin Money Access Saver account is still paying just 0.25%. And Barclays live Everyday Saver account is paying between 1.16% to 1.66% AER – the latter applying to the first £10,000 deposited only.
If you have £10,000 in an account earning 0.25%, with inflation at the current level of 3.4%, after one year, although the total balance including accrued interest would be £10,025, the real value after the effect of inflation would have reduced your spending power to £9,695. However, if you picked the top paying easy access ISA paying 5.15% tax free/AER, not only would the total balance have increased to £10,515 after a year, but more importantly the real value would have grown too – giving you spending power of £10,169, so more than keeping up with inflation.
This illustrates just how important it is to pick the top paying accounts. So keep a close eye on our best buy tables. If you've not already done so, you could sign up for our Weekly Best Buys email, popping the top rates available into your inbox each week.
Take a look at our inflation calculator below, to see how your savings accounts are faring against inflation.
]]>There is a base rate decision next week, and we're expecting it to remain static for a bit longer. This is keeping a little competition alive for now, but how long will this continue?
RATES ARE CORRECT AS AT THE TIME OF PUBLICATION (15/03/2024). All up to date rates can be found on our Best Buy tables.
The easy access market has continued to slow down over the last couple of weeks and in fact the top rate on offer has dropped slightly.
That said, there are plenty of accounts available that are paying more than 5% gross/AER, so that’s good news. Even after basic rate tax has been deducted, the net rate of a 5% account is 4%, so keeping up with and even beating inflation.
The Beehive Limited Issue Easy Access Account Issue 4 paying 5.12% was the first account withdrawn from the top five, bringing Cynergy Bank back into the table again, paying 5.10% AER – an account launched at the end of November last year. It’s been in and out of our tables multiple times this year!
In fact, with the withdrawal of the next top two accounts from Paragon (Double Access Account Issue 6 – 5.16% AER) and Close Brothers (Easy Access Account Issue 2 – 5.12% AER) it actually moved up to mid table, leaving Virgin Money’s Defined Access eSaver Issue 21 and Monument’s app-only Easy Access Savings account at the top, both paying 5.11% AER.
However, with the withdrawal of the account from Virgin Money, this left Monument at the top with Cynergy offering the highest paying online account, for those who are not happy with app-only accounts. And as we end the week, Monument too has withdrawn from the market – so Cynergy is back at the top, along with Secure Trust Bank, paying the same rate of 5.10% on its Online Easy Access Account Issue 19.
We’ve seen yet more positive activity in the fixed rate bond tables, although the momentum has slowed.
1 Year
SmartSave has managed to hang onto the top spot, although it did have to increase the rate on offer from 5.26%, to 5.28% due to the introduction of a new provider to the savings market.
MBNA, which is part of Lloyds Bank, and probably better known as a credit card provider, has decided to get into the savings market, launching a 1-year bond paying 5.27%, which at the time put it at the top. But SmartSave was quick to put the newcomer in its place, knocking it down into the 2nd spot.
The other bits of activity took place mid-table. Relative newcomer, StreamBank launched a 1-year bond paying 5.25% putting it into 3rd spot and Charter Savings Bank launched a new bond paying 5.21% AER. All in all, this activity has helped to push the average of the top five from 5.20% to 5.24% AER.
2 Years
In the 2-year table, the news has also been good, and for a while all of the top five were paying 5%.
Hampshire Trust Bank (HTB) was the first to make a move, launching a bond paying 5%, meaning it joined Atom, Hodge Bank and State Bank of India at the top.
But Close Brothers wanted to join the 5% gang too, meaning that all of our top five were paying the same rate, although not for long, as Atom Bank withdrew its 5% bond, replacing it with one paying 4.75% which saw it drop out of the table altogether.
This allowed SmartSave back in with its bond paying 4.97%, however a few days later this bond was withdrawn too, putting DF Capital into the last spot with a bond paying 4.96% AER, which was launched on 5th Feb this year.
There was one more move of note, which was from Close Brothers again, who this time actually launched an account paying 5.05% - so breaking through the 5% ceiling and taking the top spot.
3 Years
It’s good to see some activity in the 3-year table continue, although there’s not a great deal to write about. That said, the little there is, is good!
HTB was the first to make a move again, launching a bond paying 4.65% and taking it to the top spot, pipping Smart Save by 0.01%.
Close Brothers was the next to make a move, upping the rate on offer to 4.63% moving it into 5th position – but on the table nevertheless. However, it was Skipton Building Society that has made the most meaningful move, launching a 30 month bond (which we’ve added to our 3-year table although it is a 2½ year bond. But with a rate of 4.75%, it takes the top spot.
The only other move was a further increase from Close Brothers, increasing the rate to 4.65% elevating itself to mid table – especially as SmartSave withdrew from this table as well as the 2-year table.
But as we end the week, the average of the top five has increased to 4.66% from 4.63%.
5 Years
The 5-year table has been quieter too, but as with the other tables, what has happened has largely been positive.
HTB was again active, launching a market leading bond paying 4.54% and Close Brothers new 5-year bond paying 4.53% saw it take 3rd place. SmartSave seems to have decided to focus on 1-year bonds, as it has withdrawn its 5-year offering, as well as 2-year and 3-year.
But Close Brothers wasn’t finished yet and as we end the week has jumped to the top with its latest bond offering 4.55% - nudging the average of the top five up from 4.52% to 4.53% AER.
The activity in the Fixed Rate ISA tables has also continued although far more muted; disappointing as we get closer to the end of the tax year.
1-year
The members of the ‘more than 5%’ gang continue to swell as Kent Reliance, Castle Trust, OakNorth, Aldermore and Close Brothers have all increased rates in the last couple of weeks.
Kent Reliance and Castle Trust were the first to move, launching ISAs paying 5.03% and 5.05% respectively. But OakNorth then launched a higher paying ISA paying 5.06%, slotting into 2nd place behind Virgin Money with that 5.25% account that is only available to those who have or open a current account with Virgin.
Aldermore and Close Brothers were the next to increase their offering, both paying 5.05%, nudging the average of the top five up from 5.06% to 5.09% AER.
2-year
There’s hardly anything to report in the 2-year table. The top spot is still occupied by the Skipton Building Society 18 month ISA paying 4.75%. Other than that, Close Brothers launched a new ISA paying 4.70% to join OakNorth and UBL in joint second place, with Shawbrook taking up the last slot paying 4.69%
3-year
It’s an almost identical situation in the 3-year table, with the top spot with Aldermore paying 4.50% remaining unchallenged. But an increase from Close Brothers, offering an ISA paying 4.40% puts them into second place and increasing the average from 4.39% to 4.41%.
5-year
The story is the same in the 5-year table too. UBL remains at the top paying 4.16% with the only increase coming from Secure Trust Bank, launching a mid-table ISA paying 4.05%.
If feels like we may have hit the peak now, so anyone looking to open an ISA for this tax year, might want to get a move on.
In my last Rates Rundown report, Chip had stolen the thunder from moneybox, by upping the rate on its Chip Cash ISA* to 5.10%, nudging moneybox out of the way by the smallest of margins.
However, moneybox refused to be beaten and fought back, increasing its rate to 5.11%. Interestingly, this means that the highest paying easy access ISA is actually now paying more than the highest paying easy access non ISA account! Great news for those still looking to use their ISA allowance.
*We are occasionally paid by some providers if you click through from our Best Buy Tables and open a savings or current account with them. We will never accept a payment that compromises in any way our independent, whole of market approach to providing information on savings products. For clarity we will indicate those companies who remunerate us with an asterisk (*).
]]>If the deal goes ahead it would be the biggest UK bank takeover since Northern Rock Bank was bought, ironically, by Virgin Money in 2012. Virgin was itself bought by Clydesdale and Yorkshire Bank in 2018.
However, Nationwide has said that it would make no material change to Virgin Money’s employees “in the near term”.
In terms of what it might mean for savers, it’s simply too soon to say. But some people will be concerned about how this move will affect the Financial Services Compensation Scheme (FSCS) protection, especially for those who already have money with both Nationwide and Virgin Money.
Well Nationwide has confirmed that if the deal goes ahead, the two brands will operate under two separate licences, so there would be no change to the protection, at least immediately. Over time however, it’s likely that the Virgin brand will cease and there may be a point at which one of the banking licences is dropped. But that will be some way down the line and what we have seen in the past, with other bank mergers, is that there has been plenty of notice, to give customers time to ensure they can keep their funds protected.
Nationwide has also confirmed that it will stay committed to its Branch Promise, which means that everywhere they have a branch, they promise it’ll still be there until at least the start of 2026.
We’ll also have to wait and see what it will mean for savings rates – we’ll keep our eyes open, but it would be a shame to see Virgin Money disappear from our best buy tables.
Nationwide has snapped up a number of building societies in the past, including Dunfermline, Derbyshire and Cheshire, but this would be by far its biggest deal. As a result some of Nationwide’s members are demanding a vote on the outcome.
However, Nationwide has insisted that no member vote is needed, under the 1985 Building Societies Act. Instead, it will be writing to all members in the next few weeks to outline the benefits.
We’ll keep an eye out for any more news and let you know how things progress. In the meantime, there’s nothing to stop you from opening accounts with either provider.
]]>The Consumer Prices Index, often referred to as CPI, measures the rate at which the price of goods and services which are used by UK households, rise or fall. So, when CPI is higher, this indicates that it will cost more to buy the same items today, compared to the same time last year. And in order to calculate this change in prices, the ONS has created a virtual shopping basket, filled with a large selection of goods and services that we regularly use.
Because what people buy tends to change over time, so too do the items that are added to or removed from the virtual shopping basket. The ONS reviews this basket annually and the latest changes were announced this week. In the 2024 review, 16 items were added, while 15 were removed, out of a total of 744 items.
Amongst other things, air fryers, vinyl records, rice cakes, gluten free bread and spray oil were added, while hand sanitiser, sofa beds and whole rotisserie chickens have been removed.
Vinyl records were last included in the early 1990s but have been added back in following a resurgence in popularity. According to the BBC, this was led by the soaring success of Taylor Swift! Her album 1989 (Taylor’s Version) was the best-selling vinyl record of last year, selling 84,700 copies in the UK.
The spend on air fryers increased by over 30% between 2021 and 2022, securing their place in the basket this year.
On the flip side, as we move further away from the pandemic, people are using hand sanitiser less and less, which means it loses its place, and as some supermarkets have switched from offering whole hot cooked chickens, instead favouring smaller portions such as drumsticks or thighs, to satisfy the lunchtime food market, they are out too!
Of course, this basket of goods and services is very far reaching and as well as the obvious tangible items that you might go out to the shops to buy, it also includes services such as water supply, sewerage collection and of course, gas and electricity. But all in all, it means that while an overall inflation figure is announced each month, your actual inflation figure is likely to be very different depending on your spending habits.
How has the basket changed over the decades?
The ONS has been compiling this basket of goods for nearly 80 years, introduced in 1947, two years after the second world war had ended,
According to the ONS, in the 1940’s items added to the basket included mangles, women’s corsets and condensed milk, whilst in the 1980’s the duvet was added, plus several other distinctive items for the era including VHS recorders and video rental, microwaves and Vermouth – AKA Cinzano! The sales turnover of this branded Vermouth reportedly increased by 50% due to a five-year long advertising campaign featuring comedic actor Leonard Rossiter and Joan Collins.
Corned beef was another item included at the start, having become really popular during the war because of how rationed fresh meat was, but it stayed in the basket until 2005 before being replaced by other meats.
Another staple food, the fish finger, was added in 1962, becoming popular enough to be included after initially being launched in 1955 by Birds Eye. And the humble fish finger remains in the basket to this day – in excess of 1.5 million Birds Eye fish fingers are sold each day!
It's fascinating to take a snapshot of how things have changed over the years, but we should remember the reason for these changes – to record how the prices of items that we buy are changing. And unfortunately, although CPI inflation has fallen from a high of 11.1% last October, it is still sitting at double the government’s 2% target, at 4%. We’ll wait and see what next week’s inflation news brings.
If you’re worried about rising inflation and think you might be holding too much in cash, perhaps you'd like to explore other options, so why not get in touch. We’re currently offering all those with £100,000 or more in savings, investments or pensions a FREE financial planning review with one of our TPO colleagues, worth £500. You can find out more here.
]]>National Savings & Investments (NS&I)
The biggest news was from NS&I.
Firstly, the Chancellor announced that a new British Savings Bond will be delivered through NS&I, which will be launched in April this year.
What this actually means is that NS&I will be re-issuing its 3-year Guaranteed Income and Guaranteed Growth Bonds offering savers a chance to deposit between £500 and £1million, whilst keeping the lot protected, as all deposits made with NS&I are guaranteed by the Treasury.
The rate has not yet been released but NS&I has already announced that it will be ‘priced mid-market’ so it’s unlikely to be very exciting.
NS&I’s net financing target for the new tax year has also been announced and it’s been increased from the current level of £7.5 billion, to £9 billion.
This target is the amount that the Treasury-backed savings provider has been tasked with raising for the Government. Whilst an increase would normally be good news for savers, as it would ordinarily indicate that NS&I may need to raise savings rates in order to raise more money, the possible fly in the ointment this time is that the forecasted net amount raised for the current tax year is expected to be £10.9 billion – far above the target of £7.5 billion. So, NS&I is already awash with cash, which could mean more cuts rather than any increases any time soon. We’ll have to wait and see.
Allowances frozen
The Personal Savings Allowance (PSA) has remained the same since it was introduced in April 2016 – giving basic rate taxpayers £1,000 of tax-free interest per year and higher rate taxpayers £500. While this appeared pretty generous when it was launched, as savings rates have increased the PSA is being used up with less and less cash on deposit. In April 2016 the top paying easy access account was paying 1.45%, so you would have needed a deposit of £68,966 to breach the £1,000 PSA (assuming you held no other savings accounts). Today, if you were to open the top easy access account paying 5.11%, a deposit of just £19,570 would earn more than £1,000 in gross interest.
This is why cash ISAs have become so important once again – savers can earn tax free interest, regardless of the amount.
Which is why it’s so disappointing that the cash ISA allowance has also remained frozen. The Chancellor announced a new British ISA allowance – so an extra £5,000 can be sheltered from tax, but this is only for those happy to put money into British investments – it’s not an extra allowance for cash savers.
The Junior ISA allowance will also remain at £9,000 and there will be no increase to the Lifetime ISA limit, which is £4,000. Added to that, it’s disappointing that the 25% penalty charge for a withdrawal before the age of 60 for anything other than buying your first home has not been reduced, as was widely expected. And there has been no change to the upper value of the property that can be purchased – it will remain at £450,000.
The 'starting rate' for savings has been frozen again too at £5,000. This allows those earning less than £17,570 from employment or pension, to earn up to £5,000 in savings interest before paying any tax on it. This is in addition to the Personal Savings Allowance.
According to the Budget documents, the freeze in just the starting rate for savings should earn the Treasury £95m by 2029!
While it’s disappointing that Jeremy Hunt has failed to help savers to keep more of the interest they are earning on their savings, this doesn’t mean that you can’t put more pounds in your pockets. There is still good competition in the savings market, so keep an eye on our best buy tables to make sure you are earning as much interest as possible.
]]>