Are your savings working hard enough?

If you do have cash savings, it’s vital to check you’re earning as much interest as possible.

Published: March 25, 2022 at 1:04 pm

Rising interest rates have seen a flurry of providers boost the returns they offer in recent days – but there are still no accounts providing returns which can keep up with inflation.

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Inflation has just hit a new 30-year high, with the latest Consumer Price Index reaching 6.2% in February, more than three times the government’s 2% target.

Becky O’Connor, head of pensions and savings at interactive investor, said: “A savings account even at a best-buy rate of around 2% is delivering a negative real rate of return of around 4% at this level of inflation, meaning a £1,000 investment would be worth £960 in a year’s time.”

If you do have cash savings, it’s vital to check you’re earning as much interest as possible. Although savings rates are ticking up, many high street banks have failed to pass on recent rate rises in full.

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Rachel Springall, spokesman for Moneyfacts.co.uk said: “The base rate rises we have seen since December 2021 can have a positive impact on the savings market, but not every saver will have benefited from this movement.

“At present it is the challenger banks and building societies who are competing in the cash savings sector, with notable improvements to the easy access sector in recent weeks. However, as the biggest high-street banks fail to pass on the full rises to their customers, and some pay as low as 0.01% in interest, it would be sensible for savers to ditch and switch.”

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Current best buy easy access accounts include Aldermore’s Double Access Account Issue 1, which pays 0.95% AER.

However, this account only allows a maximum of two withdrawals a year – if you make more than this, the rate will drop to just 0.10% for the rest of the year. If you need an account offering unlimited withdrawals, Atom Bank’s Instant Saver account pays 0.90% on a minimum investment of £1.

Anna Bowes, of savings website SavingsChampion.co.uk, said: “Competition among the best buy tables have been simmering away over the last few weeks and another base rate rise should mean that there's more to come - but don't wait for too long as all the time you are waiting for better rates that might be round the corner, you 're missing out on more interest in the meantime.”

Although it’s vital to have cash savings that are readily available, if you’re fortunate enough to have already built up a decent buffer, you may want to consider investing any surplus, in the hope that over the long-term your investments provide inflation-beating returns.

Sarah Coles, senior personal finance analyst at Hargreaves Lansdown, said: “There’s still an essential role for savings – as a safety net for emergencies - so we all need three-six months’ worth of essential expenses in an easy access savings account. However, once you have your emergency fund, and money you need for planned expenses in the next five years, it’s worth considering whether any extra money could be working harder for you in investments. These will rise and fall in value over the short term, but over five-10 years or more they stand a much better chance of beating inflation than cash savings.”

Investment planning by Skipton Building Society - find out more

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Stocks and Shares ISA from Hargreaves Lansdown

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