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Nearly all savers losing money in real terms despite base rate rise

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Less than 1% of savings accounts pay an interest rate that beats or matches inflation meaning the vast majority of savers are now losing money in real terms.

Official figures published today show UK consumer price inflation (CPI) unexpectedly jumped to 2.7% last month, up from 2.5% in July.

Savers need to earn above the rate of inflation on their deposits to make money in real terms.

However, data firm Moneyfacts says just two accounts on the market match inflation. These are both five-year bonds from Bank of London and The Middle East and Charter Savings Bank.

To beat inflation, there are also just two options: Bank of London and The Middle East and PCF Bank both have seven-year bonds paying 2.75%.

This continued assault on savers’ cash comes despite the base rate rise last month. It was hoped the Bank of England’s rate hike would lead to a boom in savings rates, but banks and building societies have faced harsh criticism for failing to pass the increase on to savers.

The average increase on easy access and notice accounts was a measly 0.16% in August despite the base rate going up by 0.25%.

What can savers do?

If you don’t want to lock your money away for a long time, you could consider alternatives to savings accounts, such as high interest current accounts.

However, these typically only pay high interest on small balances and have eligibility criteria that must be met.

For example, Nationwide’s FlexDirect pays 5% on balances up to £2,500 and you need to deposit at least £1,000 a month into the account.

Rachel Springall, finance expert at Moneyfacts, says: “If savers have their cash languishing in an account paying a poor return, they should be proactive and switch.”

She notes that some of the best deals around are from more unfamiliar brands or are only available online.

“Savers should prepare to change their savings habit, especially if they favour high street branches,” she says.

If you opt for an account with a bank you have never heard of, check that it’s covered by the Financial Services Compensation Scheme (FSCS). If it is, up to £85,000 of your money is protected if the provider goes bust.


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