Savings bloodbath! Returns for savers are slashed as soaring inflation wipes out paltry interest rates and four of the best accounts disappear
- Last month 438 savings accounts beat inflation, with the CPI at 1.3%
- However the announced rise in inflation to 1.8% has seen this fall to 50
- This is the lowest number of inflation-beating deals since November 2018
- This week has also seen providers cut the rates on top easy-access deals
The number of savings accounts that match or beat the rate of inflation has fallen by almost 90 per cent after the rate of consumer price inflation soared in January.
Just 50 savings deals, none of which are easy-access accounts, match or exceed the new consumer prices index inflation rate of 1.8 per cent, according to figures from Savings Champion. The CPI rate jumped from 1.3 per cent in December, official data showed today.
That means returns to savers in the vast majority of accounts will now be zero or negative – i.e., their deposits are losing value.
This is the lowest number of inflation-beating savings accounts available since November 2018, when CPI inflation was much higher at 2.3 per cent and 57 accounts paid that much or more.
For the chop: A higher inflation figure has coincided with some of the best savings accounts seeing rate cuts or being removed from sale
The fact the CPI is now lower but fewer deals still beat it is indicative of how savings rates have collapsed over the last 12 months, with the 0.5 percentage point rise in CPI meaning no account with a shorter term length than 18 months pays at least 1.8 per cent.
This week easy-access rates have tumbled once more, with Marcus Bank and Saga both reducing their rates from 1.35 per cent to 1.3 per cent, the Post Office reducing its online saver by 0.02 percentage points to 1.3 per cent, and Cynergy Bank withdrawing its 1.31 per cent easy-access deal from sale.
It means the highest-paying easy-access deal still available is Virgin Money’s Double Take E-Saver, which pays 1.31 per cent and restricts savers to two withdrawals a year.
That rate would have been enough to beat the December’s CPI rate of 1.3 per cent, a three year low.
Anna Bowes, co-founder of Savings Champion, described the combination of falling savings rates and a sharp monthly rise in inflation as ‘a perfect storm’ for savers.
This is Money revealed last month a whopping 438 savings accounts paid at least that rate, following the announcement from the Office for National Statistics.
|Account type||Number of inflation-beating deals in January 2020 (CPI 1.3%)||Number of inflation-beating deals in February 2020 (CPI 1.8%)|
|Up to two-year fixed-rate||78||1|
|Source: Savings Champion|
This was the highest number of inflation-beating accounts since August 2016.
Of the just 50 deals which pay at least 1.8 per cent, three are two-year fixed-rate deals, nine are three-year fixed-rate accounts, and 16 are five-year fixed-rate deals.
However, even though they beat inflation rates on all term lengths are lower than they were 12 months ago.
And in a blow for those hoping to use up the remainder of their £20,000 Isa allowance before the end of the tax year, just three fixed-rate Isas match or beat the CPI.
The best rate savers can get on a tax-free savings deal which doesn’t require them to lock away their money is 1.35 per cent.
Kevin Brown, savings specialist at investment firm Scottish Friendly, said: ‘Today’s sharp and unexpected increase in inflation is a huge blow to savers, most of whom already struggle to earn enough on their cash to keep up with rising prices.
‘Combined with data earlier this week showing that wage growth is slowing, it paints a pretty depressing picture for household finances, particularly for those who are already struggling to make ends meet.
‘The uptick in prices is expected to be temporary, with inflation predicted to fall in the coming months. However, this is a double-edged sword.
‘On the one hand, households will feel flusher if prices fall but it also means the Bank has more wiggle room to cut rates if the economy begins to wobble, which would provide even more pain to savers.’
THIS IS MONEY’S FIVE OF THE BEST SAVINGS DEALS