Although inflation sticks at 1.70% the number of inflation beating accounts falls

Author: Anna Bowes
18th October 2019

A slowdown in the rise of petrol prices and second hand cars, offset increasing costs in household goods such as furniture and applicances, which kept CPI inflation steady at 1.70% in September 2019.

Texaco Station at night

And while this should be good news for savers, with inflation below the Government target of 2%, there could be less pressure on the Bank of England to raise interest rates.

In fact, general uncertainty as a whole means that the expectation for a base rate cut has increased and as a result, competition among providers has waned and savings rates have been falling recently.

A drop-in competition among savings providers and therefore best buy rates, means that the number of inflation-beating savings accounts currently available has dropped and there are now just 216 accounts* that match or beat inflation.

But there is some good news, in that notice account rates have been pretty resilient and there are accounts that require as little as 95 days’ notice that are paying almost 1.80% - beating inflation. So, savers no longer need to tie up their money to keep pace with the current cost of living.

Of course, for those who would prefer to tie up their money, there are still plenty of fixed term bonds to choose from.

Al Rayan Bank - a Sharia-compliant bank - is paying a 2.05% expected profit rate on its 12 Month Fixed Term Deposit Account.

And the very best rate currently available is also with Al Rayan Bank. Its 36 Month Fixed Term Deposit is paying 2.40% gross/AER.

There are also a number of interest-beating current accounts and children’s savings accounts that could be used to counteract the effects of inflation - albeit usually for smaller amounts and/or with fewer savers able to access those accounts.

What's important is to shop around for the best rates as the more interest that can be earned, the less the erosion of savers' cash will be.

If you leave your funds languishing in an easy access account paying 0.15%, a deposit of £50,000 would have fallen to just £46,304 in real terms over five years, assuming an inflation rate of 1.70%.

But if you were to choose one of the best easy access accounts available today, paying 1.45% AER, while the real value of your money would still be lower, it would be worth £3,084 more, at £49,388. Better still if you choose the best five year rate available today paying 2.36% AER, it would be worth £5,340 more (at £51,644) and, more importantly, it would be worth more in real terms.

Take a look at our Best Buy tables to find the best account for your needs.

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