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Savers: The time is NOW to switch deals as inflation drops

Savers: The time is NOW to switch deals as inflation drops
Matt Browning
Written By:
Matt Browning
Posted:
19/06/2024
Updated:
19/06/2024

The Consumer Prices Index (CPI) measure of inflation dipped to its lowest level in three years for May, and experts have urged savers to switch rates while appealing returns are still available.

As inflation fell from its previous level of 2.3% to hit the magic Bank of England target of 2%, a mix of reductions and rises in rates hit the savings sector.

It came ahead of tomorrow’s Monetary Policy Committee (MPC) announcement, which is widely expected to be a vote to keep the base rate at 5.25%, with a dip in the rate on the cards for late summer.

But, while time is running out to beat inflation-smashing cash ISA rates, as long as the base rate remains where it is, there are still plenty of opportunities for you to switch to more profitable providers.

Indeed, today there are still 1,622 savings accounts that beat inflation, which include 277 easy-access, 160 notice accounts, 210 variable-rate ISAs, 311 fixed rate ISAs and 664 fixed rate bonds, according to data from Moneyfacts.

Savings specialists in the industry have reiterated the advice for savers not to leave their returns stagnating at lower rates.

‘Check out rates from online banks’

Mark Hicks, head of active savings at Hargreaves Lansdown, said: “Right now, you can still earn more than 5% on everything from easy-access accounts to those fixed for up to two years.

“Unfortunately, most people won’t be making anything like this, because high street easy-access branch rates are far less generous, and in most cases, they pay less than inflation.”

He added: “At times like this, it’s key to check out the rates from online banks and savings platforms, which tend to pay more than the high street giants.”

As savers dash to bag better deals, Adam Thrower, head of savings at Shawbrook, believes inflation lowering to 2% will be “music to the ears of savers”, who should be looking at longer-term fixed ISAs to secure handsome returns.

Currently, Principality Building Society offers the leading rate on a three-year fixed ISA, priced at 4.5%, while UBL UK boasts the top four- and five-year fix at 4.3% and 4.43% respectively.

Thrower said: “While there are still some easy-access accounts offering slightly higher headline rates today, locking in to longer-term accounts, with today’s advantageous rates, guarantees a predictable income stream for years to come, regardless of future rate cuts and, crucially, can provide inflation-beating returns.

“For people who are near retirement and planning to make the most of their savings when they stop working, longer-term fixed ISAs could be a useful tool in their savings arsenal.”

Thrower added: “However, the window of opportunity is closing fast and lower inflation could prompt interest rate cuts this summer.”

‘Cash returns will remain attractive’

Rob Morgan, chief investment analyst at Charles Stanley, said: “It’s a case of making hay while the sun shines. Cash returns will remain attractive for a while longer before gradually losing their gloss versus assets such as bonds and shares as the year progresses and cuts in Bank of England rates start to come through.

“The swaps market is now pricing with a reasonable chance of a cut in August, with the first one fully priced for September and the second by December. It means that if you don’t need access to your money for a period, now is the time to consider a fixed-rate account.

“You can lock in a rate of as much as 5%, which is going to look increasingly attractive if interest rates fall as expected. With inflation falling, savers should capitalise on the opportunity to earn a guaranteed rate of return that’s almost double the rate of inflation right now.”

Personal savings allowance considerations

However, before savers switch rates to new providers, Alice Haine, personal finance analyst at Bestinvest by Evelyn Partners, warned that regular banks or building society accounts need “careful consideration”.

This is due to the freeze in personal savings allowance leaving you at risk of paying tax on your savings interest.

Haine said: “This has remained static since 2016 and is therefore more easily exceeded by the significantly higher bank and building society savings rates of late.

“It means savers may be liable for tax charges at much lower levels of deposits, which is why more tax-efficient options such as an ISA make sense, as adults can save or invest up to £20,000 with all income and gains protected from the ravages of tax.”