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Move your savings now to beat inflation

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13/02/2019
More savings accounts now pay an inflation-beating rate of interest, but two in three savers won’t switch.
Move your savings now to beat inflation

Savers now have even less of an excuse to leave their money sitting in accounts paying paltry rates of interest.

Data published today shows inflation fell to a two-year low of 1.8% in January, which means more than 200 accounts currently beat the inflation rate.

It’s a far cry from a year ago when inflation was 3% and not a single standard savings account could beat it.

In total, 169 fixed rate bonds, 39 fixed rate ISAs and seven notice accounts now match or beat inflation, according to data firm Moneyfacts. This means it is easier to stop the value of your cash being eroding by inflation in real terms.

However, research shows that most savers stick with accounts paying rock-bottom rates.

A study by Hargreaves Lansdown found 50% of people haven’t switched savings account in the past five years, 40% have never switched and two out of three don’t ever plan to switch.

This is particularly worrying as some older accounts held with high street banks pay measly returns. With the HSBC Flexible Saver, for example, which is available to open now, you’d earn just 0.15%.

Tie up your money

Inertia helps to explain why so many people don’t actively move their savings around. Having to lock funds away to get an inflation-beating rate could also be putting people off.

While it’s true that no easy access accounts beat or match inflation, the shortest term you need to tie your money up for is just six months. Islamic bank BLME, pays an expected profit rate of 1.85% on its six-month fixed-term account.

Notice accounts are another option. With these, you have to give your bank or building society notice before you make a withdrawal. You can get 1.82% with a 90-day notice account from Secure Trust Bank or 1.9% from Charter Savings Bank’s 95-day notice account.

Of course, the longer you lock your money away for, the better the return.

Competition has been heating up especially in the one and two-year bond markets.

Al Rayan Bank pays 2.15% on a one-year bond and 2.4% on a two-year bond, while 12 months ago, the best you could do was 1.95% for one year and 2.1% for two years.

If you have a longer time frame, Al Rayan Bank pays 2.5% on its three-year fixed term account and Vanquis Bank pays 2.7% on a five-year bond.

There are also a handful of high interest current accounts paying up to 5% – such as TSB and Nationwide – but these come with strict conditions and not all savers have access to them.

Easy access

If you’re after an easy access account, it’s important to choose the highest-paying account to try and mitigate the effects of inflation.

Analysis by Savings Champion shows that £50,000 in an easy access account paying 0.15% would be worth £46,077 in real terms over five years, assuming inflation of 1.8%.

But the same money in the top paying account – 1.55% from ICICI Bank UK – would be worth £49,389, a difference of £3,312.

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