Savings rates: No account beats inflation but switching still ‘essential’ to get best deal

Finance: Expert discusses impact of inflation on a savings account

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Inflation figures were released by the Government today and the Consumer Price Index (CPI) fell to two percent during July, from 2.5 percent in June. While savers may be relieved by this news, inflation is expected to rise to 3.3 percent or higher by the end of the year.

Rising inflation is placing pressure on the savings market, as analysis from Moneyfacts.co.uk highlighted in August 2020 there were 91 deals which could beat the inflation rate of one percent for July 2020, but there is now not a single account that could do so.

While this will be disheartening news, Moneyfacts.co.uk shared the top savings rates available to savers today:

  • Easy access account: Tandem Bank – 65 percent
  • Notice account: DF Capital – 1.00 percent (120-day)
  • One-year fixed rate bond: Tandem Bank – 1.31 percent
  • Two-year fixed rate bond: Atom Bank – 1.43 percent
  • Three-year fixed rate bond: Atom Bank – 1.52 percent
  • Four-year fixed rate bond: JN Bank – 1.55 percent
  • Five-year fixed rate bond: UBL UK – 1.72 percent (payable on maturity)

Moneyfacts.co.uk also shared where the best ISA rates can be found at the moment:

  • Easy access ISA: Cynergy Bank – 0.65 percent
  • Notice ISA: Aldermore – 0.35 percent (30-day)
  • One-year fixed rate ISA: OakNorth Bank – 0.77 percent
  • Two-year fixed rate ISA: Paragon Bank – 1.01 percent
  • Three-year fixed rate ISA: Paragon Bank – 1.11 percent
  • Four-year fixed rate ISA: UBL UK – 1.12 percent (payable on maturity)
  • Five-year fixed rate ISA: UBL UK – 1.34 percent (payable on maturity)

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Rachel Springall, a Finance Expert at Moneyfacts.co.uk, commented on these rates: “There has been a notable uplift to market-leading savings rates on offer since last month across various types of accounts and terms, which is positive to see.

“However, inflation is eating its way into savers’ hard-earned cash and with the expectation for it to rise, its eroding power will not be easing any time soon.

“Savers would be wise to not let this deter them from finding a more attractive rate, as deals are improving, and they may miss out on a market-leading rate if they become apathetic.

“Due to the uncertainty the pandemic caused, savers may well wish to keep their cash close to hand, such as with an easy access account.

“Thankfully, rates are slowly improving in this sector and the top rate today comes from Tandem Bank at 0.65 percent, which increased its rate last week by 0.25 percent and is now one of the highest easy access rates seen since the start of the year.

“Not only is this a market-leader for new customers, but it also supports Tandem Bank’s green lending objectives – so savers will get a decent return and be supporting ethical initiatives in the process.

“As a comparison, most of the high-street banks pay as little as 0.01 percent on easy access accounts at present, so clearly savers would be wise to consider alternative brands.”

Ms Springall continued by examining what savers should do to improve their chances of getting better deals.

Ms Springall concluded: “Inflation sat at one percent a year ago and there were 91 deals that could outpace this; however, the majority of these standard savings accounts were fixed rate bonds.

“If savers locked into a one-year fixed bond this time a year ago and plan to get a new bond with the same term, Tandem Bank pays 1.31 percent on its one-year fixed bond, whereas a year ago the top deal was from OakNorth Bank at 1.21 percent.

“Challenger banks are making several improvements across the market and take market-leading positions across many different scenarios, so hopefully we will see even more improvements to rates in the weeks to come.

“To mitigate the impact of inflation, switching accounts for a more attractive return is essential and considering the more unfamiliar brands would be wise as they continue to inject competition across the savings spectrum. Signing up to rate alerts and newsletters to keep abreast of the changing top rate tables is a good idea, as savers may need to act swiftly to take advantage.”

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