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Finally, some savings accounts beat inflation

Written by: Paloma Kubiak
The UK rate of inflation came in at 2.5% for March, which means finally, a number of longer-term fixed rate savings accounts match or beat it.

Inflation has been a worry for UK savers as it peaked to 3.1% towards the end of 2017.

But the latest figure from March reveals it has fallen to 2.5%, and for the first time in months some savings accounts can actually beat or match the rate.

In fact, there are six providers offering interest rates above the 2.5% inflation rate on their five-year fixed deals, according to Moneyfacts data:

  • Vanquis Bank Savings (min. £1,000) offers 2.65%
  • Secure Trust Bank, to 3 May 2023 (min. £1,000), offers 2.65%
  • UBL (min £2,000), offers 2.65%
  • PCF Bank (min. £1,000), offers 2.60%
  • Close Brothers Savings (min. £10,000), offers 2.60%
  • BLME (min £25,000), expected profit rate of 2.55% (must have BLME current account).

There are also a handful of seven-year bonds which beat inflation:

  • PCF Bank (min. £1,000) offers 2.75%
  • Secure Trust Bank, to 2 May 2025 (min. £1,000) offers 2.75%
  • Secure Trust Bank, to 3 May 2024 (min.£1,000) offers 2.70%
  • BLME (min £25,000) expected profit rate of £2.60%.

According to Moneyfacts, rate rises have also outweighed cuts for 15 consecutive months, as it recorded 114 rate rises and 49 rate cuts in March. Around half (55) of the rises were for ISAs, but there were also 16 cuts counted.

Rachel Springall, finance expert at Moneyfacts, said: “Inflation is still having an impact on the true spending power of savers’ cash, but finally it has fallen to a level where longer term savers could now beat its impact.

“Thankfully, as a whole, savings rates are on the up, and with the continued murmurings of a base rate rise this year, it is expected for the market to move in a positive direction.

“As rates are on the up, some savers may prefer not to lock their money away for the long-term, so they can easily move funds if the need arises. However, they might be missing out on some of the best rates we’ve seen since the start of 2018.”

Should you lock in to a long-term fix?

In order for savers to beat inflation, they need to lock up their money for a minimum of five years.

Sarah Coles, personal finance analyst at Hargreaves Lansdown said this has thrown many savers into a quandary.

“With rate rises now widely predicted in May (although not guaranteed), and a period of very gradual rises expected over the next few years, they don’t know whether to fix for five years now and beat inflation, wait to fix after May in the hope that fixed rates will rise, or whether a five-year fix is the right answer for them at all.”

The problem is that we can’t predict inflation and interest rates accurately.

She said: “If you want to start beating inflation right now, and you don’t mind whether the account looks competitive or not further down the line, then it makes sense to fix for five years today. If you are prepared to miss out on interest for a month in the hope that a five year fix is more attractive in May, then you can wait-and-see, as long as you understand the price you are paying for waiting.

“If you would be devastated to fix and then see your account overtaken by far more competitive rates, then in a rising interest rate environment, a five-year fix may not be right for you at all, because this is always a risk. A shorter-term fix may be a sensible compromise. At the moment, for example, the best one year fix is 1.85%, just 0.8% less than the best over five years.”

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