Savings rates: Best deals shared as inflation is to ‘whittle’ away over £3k from savers

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Expert gives cash savers tips to beat inflation

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Inflation rose to 3.2 percent in August and as such, money held in any account paying low amounts of interest is set to lose its spending power over time. To illustrate how damaging this will be for savers, Bowmore Asset Management analysed how much money in real terms people will lose if they keep their cash in ISAs. Unfortunately, savers will likely find themselves thousands of pounds worse off over the coming years.

The company explained the average interest rate on a cash ISA rate is currently 0.31 percent and the rate of inflation is now 3.2 percent. At these rates, £20,000 in a cash ISA will gain £312 in interest over the next five years whereas it would gain £3,465 if it kept pace with inflation.

This means £20,000 put into a cash ISA today, the highest amount possible, would lose 17 percent of its value in real terms over the next five years as its purchasing power decreases.

Those who hold money in instant access accounts are to face even more dour results. Bowmore detailed the best instant access cash ISA is currently offering just 0.6 percent interest meaning it would return a meagre £609 over the next five years from a £20,000 deposit.

Charles Incledon, a Client Director at Bowmore Asset Management, commented: “The interest rates on ISAs are so low that leaving money in one today will just mean watching inflation whittle it away.

“The rise in inflation should make savers reconsider where they are putting their money. People with money sitting in cash ISAs should be assessing their options with returns getting worse and worse.

“Investing in funds gives people a better opportunity to beat inflation. Typically, returns from equities outperform cash over the medium and long-term.”

Today, the Bank of England published its latest quarterly survey of public attitudes to inflation, which was conducted on its behalf by Kantar in mid-August. The results, Bestinvest warned, showed savers are being “too sanguine about the squeeze ahead and risk to their finances from price rises.”

When asked to give the current rate of inflation, the median response gave an answer of 2.9 percent. However, when asked about expectations for the next 12-months, the median respondent expected UK CPI to fall to 2.2 percent.

This could leave many savers facing a nasty shock by the end of the year, as the Bank of England is projecting inflation to rise to four percent by the end of 2021 and then recede to 3.3 percent by the third-quarter of 2022 – “materially higher than the public appear to expect.”

Jason Hollands, the Managing Director at Bestinvest, commented: “While it is likely that the current surge in inflation is temporary in nature, reflecting the rebound in economies after last year’s pandemic induced recessions and exacerbated by supply chain blockages, there is an outside risk that it turns out to be more persistent given the enormous amounts of stimulus cash that have been injected into the global financial system. If economies overheat and inflation outpaces expectations, central banks will eventually have to act, tapping on the brakes by increasing borrowing costs.

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“In the near to medium term, the public need to be aware that the squeeze on their household finances is going to get worse before it gets better and that rising inflation is also going to erode the real value of the cash savings that many households have built up during the lockdowns. For savers and investors, getting a return that at least keeps up with inflation is imperative just to stand still in real terms. It is therefore really important to assess whether you are holding too much in cash and consider investing some of this instead.”

These calls should be heeded carefully as analysis from showed that even some of the best savings rates available do not come close to inflation levels.

Yesterday, released its latest “Pick of the Week” and two savings products were highlighted. The first came from Isbank.

Eleanor Williams, a Finance Expert at, explained: “Isbank has increased the rates on its Raisin UK – Fixed Term Deposits this week. Rising by a substantial 0.44 percent is the 2 Year option, which now pays 1.70 percent on maturity and is available to those with minimum investment amounts of £1,000.

“Neither early access nor further additions are permitted on this account, so investors need to be confident that they are comfortable locking their savings away for the two-year term. Additionally, savers may also wish to note that a £50 welcome bonus can be claimed when customers open their first savings account via Raisins UK website. Following the update this account secures a position in the top 10 when compared to other bonds with similar terms and receives an Excellent Moneyfacts product rating.”

The second option came from the West Bromwich Building Society.

Ms Williams continued: “Amongst various changes to its range of savings products, this week sees West Brom Building Society make a 0.10 percent increase on its WeBSave 5 Year ISA.

“Savers yet to utilise their tax-free ISA allowance may be pleased to see that this now pays a rate of 1.30 percent yearly. Investors may be further tempted as although this ISA has a five-year term, earlier access and transfers out are permitted, subject to providing either 180-days notice or a loss of interest penalty, which could be a plus for some, as could the fact that further additions are an option whilst the issue remains open. Overall, this account receives an Excellent Moneyfacts product rating.”

Additional research from showed there “is not one standard savings account” available at the moment which can beat inflation. The single highest rate available at the moment, based on having £10,000 invested, comes from Atom Bank which is paying 1.86 percent on it’s five-year fixed rate bond.

UBL UK is also paying the highest rate available for ISAs, with its own five-year fixed rate deal paying 1.5 percent on maturity.

Ms Springall concluded on what savers should do in light of this pessimism: “Savings rates have improved vastly since last month which will be great news for consumers looking for a competitive return on their cash. However, inflation overshadows the positive shift, as the latest figure of 3.2 percent is the largest rise month-on-month since records began and not one standard savings account can beat its eroding power. There is an expectation for inflation to stay above the Bank of England target of two percent for some time yet, but it is vital savers do not become apathetic as they could miss out on some of the best rates we have seen all year.

“Locking cash away for longer may not be feasible for some, indeed consumers may be reluctant to invest longer than a year at most due to the impact of the Coronavirus pandemic on their financial health. However, savings providers are keen to draw in business and fixed rates have been rising substantially in recent months. Savers can now get a one-year bond paying 1.50 percent (Atom Bank) but a year ago savers would have had to tie their money up for five years for a rate nearest to this return. Those who are averse to a fixed account will find easy access rates have improved since last month, but there is much more room for improvement as a year ago, savers could get a rate of 1.20 percent (Skipton Building Society).

“ISA’s are still worth considering for any saver yet to use their tax-free allowance, due to their longer-term advantages, and rates are thankfully rising in this arena. However, there remains a notable gap between fixed-rate ISAs and fixed-rate bonds. It would therefore be sensible for savers to compare the rates carefully and consider their Personal Savings Allowance. One of the savings providers to cause a stir in the fixed ISA market recently was Secure Trust Bank, it now leads both the two- and three-year fixed ISA sector with rates at 1.15 percent and 1.25 percent respectively.

“Keeping abreast of the changing savings market is vital, as savers could stand to miss out if a deal has a short shelf life or becomes oversubscribed quickly, so signing up to rate alerts and newsletters is wise. Due to the refreshing change to the market, it would not be too surprising if some savers decide to wait a little longer in the weeks ahead expecting more improvements to surface.”

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