Support your savings and fight inflation

SAVERS face tough choices as they work out how to get the best possible return on their cash deposits and protect their value in the cost-of-living crisis.

Banks and building societies offer much higher savings rates than a year or two ago, but they’re still well below today’s sky-high inflation rate.

Inflation stood at 10.1% in March which is more than twice the interest paid by even the very best savings accounts.

Don’t despair, though, because most experts reckon inflation will start falling sooner and faster than seems possible today.

Consumer price growth could fall as low as 2.9% by the end of the year, according to the Office for Budget Responsibility.

In 2024, it could fall to 0.9%, taking us back to the era of ultralow interest rates.

Yet savers who lock into fixedrate bonds today can secure rates of 4.5% a year or more, which on some longer-term bonds will be paid all the way through to 2028.

There may now be an exciting opportunity to finally get an inflation-busting return on cash for those who act fast.

Fixed-rate savings bonds typically pay the highest rates of interest to those who are able to lock their money away between one and five years.

Today’s best buy five-year fixed rate is from United Trust Bank, which pays 4.61% a year on a minimum opening balance of £5,000.

Like many of the best accounts, this can only be opened online.

It is closely followed by Monument Bank, which pays 4.60% but is only available via the bank’s mobile app. Also, savers need to deposit at least £25,000.

For those who prefer to open and operate their account by post, Paragon Bank pays 4.35% on £1,000 and above.

Anna Bowes, founder of savings rate tracking service Savings Champion, said while these rates are good, last November five-year fixed rate bonds paid just over 5%.

“Banks are cutting rates on longer-term bonds as they anticipate inflation and interest rates will have fallen sharply by the time they mature.”

Unusually, shorter fixed-term bonds lasting for just one or two years pay almost as much as five-year fixes.

Charter Savings Bank’s one-year fixed rate bond pays 4.56% on a minimum opening balance of £5,000. It has just been leapfrogged by Shawbrook Bank, which pays 4.70% on £1,000. Both accounts are online only.

Kent Reliance now pays 4.53% on a minimum opening balance of £1,000, and this can be opened and managed by post or in a branch, as well as online.

At time of writing, Investec Bank was paying the highest interest of all. Its two-year bond pays a fixed rate of 4.70%, available only through the Raisin savings platform.

Inevitably, this is online only too but with a low minimum deposit of £1,000. Charter pays 4.61% fixed for two years.

Over three years, United Trust Bank leads the way paying 4.59% on a minimum £5,000.

For those who prefer postal or branchbased accounts, Leeds Building Society pays a fixed 4.10% for three years on a minimum opening balance of just £100.

If inflation falls as expected, fixed rate bonds will also slide, said Andrew Hagger, banking expert at MoneyComms.

He suggests that savers who have enough cash could hedge their bets by putting some money in a one-year fixed rate bond and the rest in a three or five-year bond.

“Never tie up your money for longer periods unless you are sure you won’t need it because there are penalties for early withdrawals or you may not be able to get hold of your money at all,” he said.

However, if you’re 100% certain that you can put your cash away for a full five years, then it could prove a great option today. “You might find yourself earning higher than inflation returns in a year or so, although there’s no guarantee as the economy may not play out as expected,” Hagger added.

Everybody should have some cash in an easy access account for emergencies, such as an unexpected bill, serious illness or losing your job, said Sarah Coles, head of personal finance at Hargreaves Lansdown. “Ideally, this should be enough to cover your essential bills for three to six months, although not everybody can manage that.”

Again, you should shop around for the best rate, and the good news is that there are now plenty of competitive easy access accounts to choose from.

The Chip Instant Access Bank leads the way paying 3.55% on a minimum deposit of just £1 but this is only available by mobile app.

Family Building Society’s Online Saver runs close paying 3.40% on a minimum £100, but this can only be opened online.

As always these days, savers who prefer to open and run their account either in person at a branch, or by mail or telephone, have to accept a lower rate.

The Skipton Building Society Base Rate Tracker Account offers all these options, and pays 3.15% on £1 and above, with easy access.

The downside with a variable or tracker rate easy access account is that the rate you receive will start falling as soon as interest rates start to slide.

You have more security with a long-term fix, but only if you are happy to lock your money away, and not everyone can.

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Act fast and you could get an inflationbusting return on your cash

Online supermarket Ocado is to close its oldest distribution depot, putting 2,300 jobs at risk.

Orders handled by the site at Hatfield, Hertfordshire, will transfer to a new automated warehouse in Luton.

Ocado claimed it would redeploy “as many people as possible” to Luton and other depots.