Finally, savings rates beat inflation

21st April 2018

Good news? CPI inflation dropped to 2.50% in March 2018, down from 2.70% in February, which means that the overall rate at which prices are increasing has slowed. For savers, the drop in CPI inflation has finally meant that there are some savings accounts that are now paying a rate that is higher than inflation!

Women's clothing

A number of providers are offering five year fixed rate bonds paying up to 2.65% gross/AER – and Vanquis Bank even has a four year fixed rate bond* offering just over the current rate of CPI Inflation, at 2.52% gross/AER.

Of course, tying your money up for this long might not be for everyone, but it’s encouraging for savers to finally have the option. Earning the highest rates available on some of your cash might help hedge your bets against any delay in a base rate rise and any subsequent lull in competition as a result.

Last month’s fall in inflation was mainly due to the price in women’s clothing rising at a slower pace than last year. The price of alcoholic drinks and tobacco also contributed to this downward move.

Whilst many will view a fall in inflation as good news, this unexpected fall does put into question whether the hotly anticipated base rate rise that was expected next month, will now go ahead. So, that is not such good news for savers.

In an interview with the BBC on Friday (20th April) the Governor of the Bank of England, Mark Carney, said:

“Prepare for a few interest rate rises over the next few years.” But he added “I don’t want to get too focused on the precise timing, it is more about the general path”.

There are signs that inflation could start to rise again, which is why many experts are still predicting that the base rate rise will go ahead in May as planned.

Wage growth rose to 2.80% in the three months to February (higher than inflation for the first time in a year) and unemployment is falling. Higher wages and less unemployment means that demand for goods could increase, which would then lead to higher prices.

We’ll now just have to wait and see what the Monetary Policy Committee (MPC) decides to do. The next decision is on 10th May and we will of course keep you updated.

Dont' wait to get the best rate

In the meantime, savers don’t need to simply sit around waiting if they want to improve the interest they are earning, especially if they have their savings languishing in an uncompetitive account.

Currently an astonishing 58% of easy access accounts are paying 0.50% or less.

For example, Halifax’s once hugely popular Liquid Gold account is paying just 0.10% and the HSBC Flexible Saver is paying just 0.05%. However, much better rates can be found elsewhere.

So, even in the unlikely event that these dreadful accounts were to increase by the same amount as any base rate rise, they would still be paying far less than the current best buys.

If you are unlucky enough to be in one of the rock bottom accounts paying just 0.05%, by switching today to the best buy easy access account, you could increase the interest you are earning by 1.25% AER (RCI Bank is offering 1.30% on its Freedom Savings account*) – five times that of a base rate rise of 0.25%.

On a balance of £10,000 that could be the difference between earning £5 or £130 over 12 months.

And don’t forget the High Interest Current Accounts that are still paying rates of up to 5% AER – albeit on smaller balances.

These too could help boost returns while we wait for things to get better.

If you would like to find out more or review your options, give us a call on 0800 011 9705 and one of our savings experts will be happy to help.

*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 (*).

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