CPI inflation for April 2018 has dropped again and has now hit a 13-month low of 2.40%.
However, a key reason for the fall in April was that Good Friday fell at the end of March this year, which meant that the usual increase to air fares over the Easter period did not fall into April’s figures, as it did last year.
But regardless, in general what this means for savers is that more and more savings accounts are now inflation busting - although mainly for those who can earn gross interest, either because they are non-taxpayers or are not fully utilising their Personal Savings Allowance.
Four years is the shortest term that offers an interest rate of more than the current rate of CPI inflation, with Vanquis Bank paying the top rate of 2.52% gross/AER.
All in all, there are now 19 fixed term accounts that match or beat the latest CPI inflation rate of 2.40%.
In addition, there are a handful of interest-bearing current accounts and children’s savings accounts that could be used to counteract the effects of inflation.
If you need access to your money or are not able to tie your money up for a longer term, even though you might not be able to beat inflation, switching to a competitive account can still mitigate some of the damaging effect that inflation can have on your cash.
If you leave your funds languishing in an easy access account paying 0.05%, a deposit of £50,000 would have fallen to just £44,520 in real terms over five years, assuming an inflation rate of 2.40%.
If you were to choose the best easy access account available today, paying 1.32%, whilst the real value of your money would still be lower, it would be worth around £3,000 more, at £47,418.
The good news is that there are now a number of accounts that are paying interest rates that are greater than inflation - albeit over the longer term - and hopefully inflation will continue to fall towards the Government’s 2% target.
If you can tie up some of your money for the longer term, you can at least feel reassured that these savings are keeping up with the cost of living and by choosing the best rates for the rest of your funds, you are doing all you can to mitigate the effect of inflation on your accessible money too.
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