Savers urged to review returns
There’s been very little for savers to celebrate recently, but inflation falling to a four-year low has provided some cheer
There’s been very little for savers to celebrate recently, but inflation falling to a four-year low has provided some cheer – even if it’s likely to be short-lived.
When inflation or the cost of living falls, the more your cash is ultimately worth. For example, now that the rate of inflation is 0.5%, if your money is sitting in a savings account paying 1% interest, you are actually gaining money in real terms because prices are rising at a slower pace than the purchasing power of your cash.
According to research by financial website Moneyfacts.co.uk, there are now 491 savings accounts that can match or beat inflation.
However, following the Bank of England’s base rate in March, many providers are continuing to reduce their savings rates. If inflation starts to rise again so that it is nearer the government’s 2% target, this means savers could find it much harder to find an inflation-beating account.
Kevin Brown, savings specialist at Scottish Friendly said: “Savers will take comfort in the fact that despite terrible savings rates, they aren’t having to work that hard to beat inflation of 0.5%. But it’s wise to keep a close eye on this as there is a chance people could easily be caught out as inflation will come back up as our economy gets moving again.”
Shop around for the best rates
Less than a quarter (23%) of people are shopping around for the best savings products each year, research from IG Group reveals. Even though savings returns are very low at the moment, over the long term, switching accounts when you find one offering better returns can have a significant impact on your overall savings pot.
Often fixed term savings accounts, where you agree to tie up your money for a set period, pay the best returns. For example, according to savings website SavingsChampion.co.uk, the top one-year fixed rate bond from Ikano Bank pays 1.01% interest a year on a minimum balance of £1,000, whilst RCI Bank’s five-year fixed term savings account pays 1.40%, again on a minimum balance of £1,000. You can’t make withdrawals from either of these accounts during the fixed rate term.
If you’d rather have easy access to your savings, National Savings & Investments is offering 1.16% annual interest on its income bonds which can be opened with a minimum balance of £500, or 1% on its Direct Saver account which can be opened with £1.
Rachel Springall, finance expert at Moneyfacts.co.uk said: “It has become more vital than ever for consumers to act quickly to have a chance to acquire the top savings rates. To ensure they are in the best possible position to move quickly, signing-up to alerts and checking the top rate tables regularly is a wise move. Switching may well become a frequent occurrence among savers in the weeks to come as they race to secure the best possible return on their cash.”
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