Savings rates go up again... but so does inflation

EASY access savings rates continue to surge, now almost five times higher than this time last year.

The average rate on an easy access savings account now stands at 0.84 per cent, according to rates scrutineer Moneyfacts. Individual Savings Account versions are higher at 0.92 per cent.

The savings market is finally heating up after years of rock-bottom rates thanks to increases to the Bank of England base rate – now at 1.75 per cent. Even some of the laggards are increasing rates. From tomorrow, NatWest will double its easy access Cash Isa rate from 0.2 to a still-modest 0.4 per cent for balances under £25,000.

The best Isa rate is currently 1.75 per cent, offered by Gatehouse Bank and by Virgin Money to its current account holders. Cynergy Bank, Paragon Bank and Teachers Building Society pay 1.65 per cent.

Even among the long-term savings products, rates are still nowhere near high enough to offer meaningful protection from inflation.

Although almost three times higher than this time last year, the average rate on Isas that lock away your cash for at least 18 months is still only 2.35 per cent. Inflation hit 10.1 per cent in July and new figures on Wednesday are expected to show it has risen further. Rachel Springall, finance expert at Moneyfacts, says savers will need to think hard about the trade-off between rates and flexibility as the cost of living bites.

She adds: ‘Whichever account savers decide to use, it’s imperative they consider any flexibility they may need in the months to come.’