The annual rate of inflation (CPI) has fallen slightly, down from 2.60% in July to 2.50% in August. Therefore the interest rate that savers need to earn in order to at least match inflation has dropped from 3.25% before tax (for basic rate tax payers) to 3.13%.
On the surface this looks like a glimmer of hope, however the problem is that the interest rates offered on savings accounts have also been steadily falling over recent weeks. Therefore the reality is that there are fewer accounts that actually beat inflation (after tax) even after this latest reduction. In fact there are now no new standard easy access accounts at all, that beat inflation! The picture is even more grim for high rate taxpayers who need to earn at least 4.17% before tax – they need to tie up their cash for 5 years in order to beat inflation!
But there is still some good news. At the moment there are plenty of ISAs out there paying more than CPI inflation at 2.50% - indeed there are some variable rate ISAs currently available paying up to 3.25%. So for savers with money languishing in a poor paying ISA, or for those who have not yet used up their ISA allowance, you could say it’s never been more important to review this!
Savings rates continue to fall, as savers' suffering continues
It is frustrating that savers have been hit yet again as rates everywhere continue to fall in what appears to be a direct result of the Funding for Lending Scheme. It’s a case of now you see it, now you don’t, when it comes to some of the best buy savings rates. So if savers see an account they’re interested in, they might need to snap it up. Close Brothers Savings recently broke from the crowd and launched a competitive 2 year fixed rate only to withdraw it the following week due to demand. And many of the best buy easy access accounts have been tumbling too, including ING Direct which has been reducing its rate to new customers almost weekly! That said, this can’t go on forever and hopefully things will improve when providers need to raise cash again….sooner rather than later please!