High time as rates fall
IT HAS been a long wait, but finally savers have a chance of beating inflation and getting a real return on their money. Sadly, this is not because banks have seen the light and hiked their rates, but because inflation has fallen sharply.
Still, it is hard to quibble at a time when good news for savers has been so thin on the ground. Make sure you are cashing in.
GOING DOWN
The consumer price inflation (CPI) rate fell to 1.8 per cent in January, below the Bank of England’s target of 2 per cent.
The drop was greater than expected and has reduced inflation to the lowest level for two years.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said interest rates on more than 170 savings accounts and cash Isas now beat inflation: “Options includes accounts fixed for six months, some available with as little as 90 days’ notice, and cash Isas fixed for two years or longer.”
You will not beat inflation with easy access, as best buy Virgin Money pays just 1.50 per cent, and fellow challenger banks Ford Money and RCI Bank pay 1.42 per cent.
IN A FIX
This means you have to tie your money up for a set period and if you can do that plenty of accounts beat inflation.
Al Rayan Bank, for example, pays 2.17 per cent fixed for one year, while Gatehouse pays 2.10 per cent over the same term. If you can fix for two years, you can get 2.35 per cent through Gatehouse Bank’s Raisin account, and 2.30 per cent from Masthaven.
Challenger banks like these benefit from Financial Services Compensation Scheme protection, so you can feel secure leaving your money with them.
The downside is that their accounts are typically only available online and of no use for those who want branch access.
Coles said just two high street banks offer inflation-beating returns, Barclays and Clydesdale Bank, and then only on their three-year fixed-rate Isas, which pay 1.81 per cent: “Worse, the Barclays one is restricted to its Premier customers. Most of the high street savings accounts still offer rock-bottom returns.”
REAL RETURN
Tom Adams, head of research at SavingsChampion.co.uk, an independent savings research site, said you can get 1.90 per cent with just 95 days notice from Charter Savings Bank.
He urged savers to shop around, because too many are leaving their money in high street accounts earning as little as 0.15 per cent. “If you left £50,000 at that rate for five years your money would be worth just £46,077 in real terms, assuming an inflation rate of 1.80 per cent,” Adams said.
If you switched the £50,000 to an easy access account paying 1.55 per cent instead it would still fall in real terms, but would be worth £3,312 more, at £49,389 in real terms after deducting today’s inflation rate.
Adams said that today’s best five-year deal, the BLME 5 Years Premier Deposit Account, pays 2.70 per cent : “At the end of the term your money would be worth £52,250 after inflation, so will have grown in real terms.”
He added that savers should not put up with paltry rates: “Switching is far better than leaving money earning a pittance.”
TAKING STOCK
Emma-Lou Montgomery, associate director for personal investing at Fidelity International, said falling inflation has a sting in the tail for savers: “With forecasts that inflation may fall further still in 2019, any expectations for a rate hike later this year are likely to be put to bed.”
Savings rates are unlikely to rise, and to make your money work harder over the long term you should consider the stock market instead. “Global markets are caught up in a whirlwind of volatility so it is essential to diversify your investments across a mix of sectors, assets and geographies,” Montgomery added.
Last week may have bought a glimmer of good news for savers, but unfortunately it is still outweighed by the bad.