More savings deals beat inflation but no reason to cheer
Inflation in May fell to 0.5% and while more savings deals can now match or beat this figure, savers should brace for more misery.
The UK inflation rate fell from 0.8% in April to 0.5% in May – the lowest rate for four years.
While a fall in inflation is usually a good sign for consumers as it improves their spending power, savings deals are also heading south, with average rates sitting at new lows.
But data from Moneyfacts reveals that the number of deals which can now match or outpace inflation has risen since last month – up from 376 to 440 today.
This includes 45 easy access accounts, 43 notice accounts, 45 variable rate ISAs, 103 fixed rate ISAs and 255 fixed rate bonds (based on a £10,000 deposit). The figure excludes regular savers and children’s savers.
In June last year, 104 deals (98 fixed rate bonds and six fixed rate ISAs) could beat 2% (May CPI) and in June 2018, only 15 deals could outpace 2.4% (May CPI).
Rachel Springall, finance expert at Moneyfacts, said consumers are adjusting their spending behaviours and are perhaps saving their disposable income amid economic uncertainties, despite a drop in the cost of goods and services.
“Those consumers who have decided to spend less and save more though will find that interest rates on savings accounts are plummeting,” she said.
“Savers may well be putting money aside in an easy access account due to the flexibility these vehicles provide, rather than to tie up their cash in a fixed account. If savers are looking to open one of these accounts, they will be disappointed to find that several providers have reduced or removed their offerings from sale in recent weeks.”
Springall added that the rate cuts and withdrawals may well be set to continue in the months to come, but there are still many savings accounts out there that will be impacted by the eroding effects of inflation today.
“In fact, some accounts pay as little as 0.01%. Inflation is expected to rise in the years to come, indeed by Q2 2021, CPI is predicted to climb to 1.4% and by Q1 2023, it’s predicted to be 2%. As it stands, savers would need to lock their cash away to beat 1.4%, but 2% cannot be beaten by any standard savings account today.
“The savings landscape is almost unrecognisable to a year ago, where savers could find a one-year fixed bond offering 2.20% as an expected profit rate with Bank of London and The Middle East (BLME), but the same provider now pays 1%, some 1.20% less. Savers coming off this rate to the other would therefore see a difference of £240 as a profit on a £20,000 deposit after a period of 12 months.”
Savers are urged to act quickly to bag the best deals and to ensure they’re in the best possible position, they’re advised to sign-up to alerts and check the top rate tables.
“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,” Springall said.