Now just 1 in 50 savings rates beat inflation

Relentless rate cuts and now a rise in inflation mean savers are losing billions of pounds instead of enjoying fair rewards.

Today, just one in 50 accounts pay interest higher than the cost of living. It means millions of nest eggs are being eroded. And the only way for savers to beat inflation is to lock away their money for years.

Money Mail estimates that the low rates and inflation hike will cost the nation’s savers at least £13.8 billion.

Today, just one in 50 accounts pay interest higher than the cost of living and the only way for savers to beat inflation is to lock away their money for years

Interest rates paid to savers have been in freefall for months, and last week National Savings & Investments (NS&I) announced sweeping cuts to 13 accounts and Premium Bonds.

Since then, banks have slashed rates further and even closed off accounts. But, adding salt to savers’ wounds, on Thursday the Office for National Statistics reported that inflation had jumped to 1.8 per cent — up from 1.3 per cent in December. 

The toxic combination of tumbling rates and rising inflation has left savers in what industry experts describe as a ‘desperate’ situation.

With inflation at 1.8 per cent, savers with even the top-paying easy-access rate of 1.3 per cent are losing out. 

Their money is dropping in purchasing power by 0.5 of a percentage point a year, turning each £10,000 into £9,950.

Easy-access saving rates are now at their lowest for more than two years at an average of around 0.5 per cent — despite the Bank of England having since raised the base rate to 0.75 per cent.

Anna Bowes, co-founder of website Savings Champion, says: ‘It is disgraceful that the best easy-access rates are nearly as bad as they were when base rate was cut to its lowest level ever of 0.25 per cent. Savers have hardly benefited from its rise.’

Money Mail is fighting for a better deal for starved savers with our ‘Stop Shortchanging Savers’ campaign.

Last month 331 savings accounts beat inflation. Now, only 21 accounts out of total of 968 will beat it, research from data firm Moneyfacts shows.

At the start of 2020 savers could earn 1.9 per cent by tying up their money for a year. But now the best they can do is 1.65 per cent from Atom Bank, and experts don’t expect this bond to stay on sale for long. 

The next best one-year deal is 1.55 per cent from Charter Savings Bank, Ford Money and Shawbrook Bank.

Even with the top one-year fixed rate bond of 1.65 per cent, savers are losing out to the tune of 0.15 per cent a year, reducing the value of their £10,000 to £9,985.

You have to tie your money up for two years to earn 1.8 per cent with Atom Bank. No other two-year rates match that rate. There are no easy-access accounts or cash Isas which even match let alone beat inflation.

The situation is even worse for savers looking to use their £20,000 cash Isa allowance before the end of the tax year on April 5. The best one-year fixed rate cash Isa rate is currently 1.41 per cent from OakNorth Bank.

Rachel Springall, from data analysts Moneyfacts, says: ‘Savers are in a desperate situation. It was inevitable that NS&I would cut its rates and banks and building societies would follow suit. 

A year ago, savers could find a top rate one-year bond at 2.15 per cent, but today not even the top five-year fixed-rate bond pays this much.’

There is £770 billion in easy-access accounts paying an average of 0.5 per cent.

With inflation at 1.8 per cent, savers will miss out on 1.3 per cent — or £10 billion. There is £167 billion in fixed-rate and notice accounts paying an average of 1.1 per cent — 0.7 per cent below inflation. 

These savers will lose out on £1.2 billion.

Those with £293 billion in cash Isas paying an average of 0.9 per cent will have lost out on around £2.6 billion. Yet the grand total of £13.8 billion shows only the cost to savers with banks and building societies, and not NS&I.

Within hours of the NS&I announcement, Goldman Sachs cut its easy-access Marcus account to 1.3 per cent. Saga also cut to 1.3 per cent. 

Post Office has cut its Online Saver twice this month: it is now at 1.25 per cent, from 1.32 per cent. You can earn a tad more — 1.31 per cent — with Virgin Money Double Take E-Saver but are limited to two withdrawals a year.

Halifax cut rates on its accounts which are no longer on sale. Its easy-access Liquid Gold, Bonus Gold, Variable Isa Saver and Saver Reward all went down to 0.05 per cent.

Santander and TSB had previously announced cuts on popular current accounts, while Co-op Bank has also now announced a series of falls that will hit its loyal savers.

Santander’s 123 and Select account rate falls to 1 per cent from 1.5 per cent on the first £20,000 in May. 

TSB Classic Plus drops from 3 per cent to 1.5 per cent on the first £1,500. ICICI, Paragon, United Trust Bank, Saga, Metro Bank and Newcastle BS also all announced rate cuts on fixed-rate deals for new savers.

[email protected]


Some links in this article may be affiliate links. If you click on them we may earn a small commission. That helps us fund This Is Money, and keep it free to use. We do not write articles to promote products. We do not allow any commercial relationship to affect our editorial independence.

Source link