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Savings rates start to come down as inflation leaps

Paloma Kubiak
Written By:
Paloma Kubiak

Since last month’s inflation figure was released, some of the top fixed rate bonds have fallen back. As inflation’s soared, savers are urged not to be discouraged, and still compare and switch deals.

October’s inflation has come in at 11.1% – a 40-year high and exceeding market expectations.

This is up from the 10.1% recorded in the year for September and within the month, Moneyfacts revealed some of the top fixed rate bonds have seen reductions.

It added that “further adjustments could be set to come” as it urged savers to act with pace “if they wish to take advantage of the current rates on offer”.

Rachel Springall, finance expert at the data site, said despite inflation still being way above the government’s 2% target, and despite its eroding effect on cash in real terms, this shouldn’t dissuade savers from seeking out the best paying deals and switching their money to the top payers.

She said: “Those savers who are prepared to lock their cash away for a year will find the top rate of 4.5% (Ikano Bank) is significantly higher than last year’s top deal, of 1.35% (Union Bank of India (UK) Ltd).

“Notable improvements have been made to longer-term fixed bonds since last year, but due to the volatility of interest rates over this period, savers who want a guaranteed return may well act on the side of caution and stick to shorter-term bonds.

“ISA rates are encouragingly on the rise, but there is still a rate gap between the top fixed ISAs and fixed bonds. It is essential savers consider both their ISA allowance and their Personal Savings Allowance before they commit but also be conscious of the rise in interest rates if they have a large pot.”

The top-paying savings

Despite the top one-year bond recently reaching 4.65%, the current top payer today is 4.5%.

Based on data from all open to all accounts on a minimum £10,000 deposit, Moneyfacts revealed HSBC’s easy access account pays 2.96%, while the best easy access ISA is from Virgin Money at 3%.

OakNorth Bank ranks in first place with its 120-day notice account paying 3.15%.

Springall added: “Flexibility with cash could be key for many savers amid a cost-of-living crisis, and thankfully, easy access and notice account rates are rising. However, despite consecutive base rate rises, some savers may find their loyalty has not been rewarded, so switching is key.

“Challenger banks and building societies are offering some of the best rates in this arena, so it’s wise to consider these brands over the more familiar household names. In addition, savers will need to also digest the terms any account may impose, such as withdrawal restrictions.”