As inflation hits 2.9% not one of the 750 savings accounts now beat inflation – so where do you put your cash?
At this rate, £5,000 left in an average bank account would lose £137.50, in real terms after the effects of inflation, over the next 12 months
THE gap between inflation and interest rates on cash savings is at its widest since 2011, with no savings accounts on the market currently beating inflation.
While the Consumer Price Index (CPI) hit 2.9 per cent last month, banks and building societies offered average rates of just 0.15 per cent on instant-access cash savings accounts, according to figures from the Bank of England.
That means that consumers could be seeing real returns of –2.75 per cent a year on their cash savings, M&G Investments found.
Despite separate data from moneyfacts.co.uk revealing that the savings market has shown some signs of improvement since the start of 2017, with the number of savings rate rises outweighing cuts for the fifth month running, there is not a single account on the market that outpaces inflation.
For example, the best rate offered on an easy-access savings account is currently 1.11 per cent, from Charter Savings Bank, but this is less than half the rate of inflation.
Ritu Vohora, investment director at M&G, said: “The gap between inflation and interest rates is now the widest that we’ve seen in five-and-a-half years.
“At this rate, £5,000 left in an average bank account would lose £137.50, in real terms after the effects of inflation, over the next 12 months.”
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Rachel Springall, a finance expert at moneyfacts.co.uk, said: “Inflation is becoming more of a threat and rates are still low compared to years gone by, which could be putting off savers looking to build a nest egg.
“Savers must not be deterred from searching for a good deal, however, as their apathy could mean missing out on much better returns.
"As an example, someone with £20,000 in a NatWest Instant Saver would earn just £2 over a year, but they could earn £222 if they held an easy access account with Charter Savings Bank paying 1.11 per cent instead, which is currently the top deal."
Where should I put my money instead?
WITH not a single savings account beating the rate of inflation, it's worth looking elsewhere if you want to earn a decent level of interest.
With savings rates at historical lows, current accounts are typically paying higher rates of interest than traditional savings accounts.
- Nationwide’s FlexDirect account pays 5 per cent on balances of up to £2,500, but only for the first year. After 12 months, the rate drops to 1 per cent
- Tesco pays 3 per cent on balances of £3,000, with Clubcard points also given on debit card spending
- Bank of Scotland offers up to 2 per cent interest on balances up to £5,000. Customers will need to pay in £1,000 each month and have two different direct debits set up on the account.
There are also government initiatives which people, especially those saving up to buy a house, can take advantage of, including the Help to Buy ISA and the Lifetime ISA (LISA).
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