Two more years of misery

14th February 2013

And the pain goes on....

Inflation is likely to stay above 2% until 2015, says the Governor of the Bank of England.  Savers can beat inflation with a handful of ISA accounts, say we.

I bet you’re thinking, here we go again.  Savers already know they are suffering.  Now the Bank of England has put something of a timeline on the misery.

Mervyn King, the guv’nor, just released his latest inflation report and it makes for painful reading.  He says inflation is unlikely to fall back to its target 2% in the next two years.

Today’s inflation rate (CPI) is 2.70% and there is not a single standard taxable savings account that comes close. Savers could suffer losses on their real returns (interest minus inflation) until 2015 at least.

Mr King says economic recovery is in sight.  The new Governor - Mark Carney, all the way from Canada - might have some new economic tricks up his sleeve.  If he has, interest rates might rise.  And hey presto!  Savers could be better off.  But that’s a big IF.

In the meantime, savers have to look out for themselves.  And we’re here to help.

Admittedly, the pickings are slim.  To beat inflation, you need an Individual Savings Account (ISA).  As these are tax-free, anyone who pays tax on their income at basic or higher rates avoids paying a slice of their interest to the tax man.

Last month, just three ISAs open to new savers matched or beat inflation.  This month, the number has risen to seven (for new savers).  Halifax and Nationwide recently added new fixed rate ISAs to their range that match inflation.

Just one variable rate ISA open to new customers beats inflation.  The Coventry’s 60 Days’ Notice ISA pays 2.80% on a minimum £1 balance.  That headline rate includes a 0.60% one year bonus.

If you already have variable rate ISAs, you are free to move your account. Remember NEVER close an account to transfer the cash as you’ll lose your tax-free benefits.  You must ask your new ISA provider to effect the transfer for you.

There is good news for ISA switchers.  First Direct will pay 3% on £40,000 or more for its variable rate easy access ISA, if you have one of their current accounts.  BM Savings will pay 2.80% fixed for three years on £50,000 or more.  And HSBC pays 2.75% on £15,000 or more to its current account holders.

If you’d like to read or listen to Mervyn King’s inflation account, you can find it here.  For details of the best fixed and variable ISA rates, visit our best buy tables.

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