Interactive Investor

Savers buffeted as inflation rises

18th November 2020 13:32

Marc Shoffman from interactive investor


Share on

Consumers are caught in a double whammy, as low rates combine with rising consumer price index.

Savers are finding it harder to get deals that make money in real terms, as new figures show inflation rose from 0.5% to 0.7% last month.

This is a three-month high, Office for National Statistics data shows. The cost of living measure, known as the consumer price index, is also expected to rise to 2.1% by the end of next year.

But experts warn that rising inflation, coupled with the low base rate set by the Bank of England, will mean increasingly low returns for savers.

Data from financial researchers Moneyfacts shows the number of savings deals beating inflation has now almost halved, from 444 in October to 227 today.

Savings rates are already falling, making the inflation rise 

There are just seven easy access accounts that can beat the 0.7% inflation rate, 17 notice accounts, four variable rate ISAs, 38 fixed rate ISAs and 161 fixed rate bonds.

None would currently beat an inflation rate of 2.1%.

Rachel Springall, finance expert at Moneyfacts, says: “Inflation-beating rates are still available in the savings market for now, but if the rate of inflation rises as predicted then most savers will be losing money in real terms based on today’s top rates.

“It will be up to savers to decide what account is right for their circumstances, but it’s vital they consider alternatives to the high street banks, as they can pay as little as 0.01%.

“The more unfamiliar brands such as challenger banks, as well as building societies, are currently paying top rates and are perfectly safe so long as they are covered by the Financial Services Compensation Scheme.”

Kevin Brown, savings specialist at Scottish Friendly, says savers may have to look beyond cash savings for a decent return.

He says “With the options for cash savers remaining few and far between, the decision many households will be making is whether to enjoy spending a little more of that money if they have a healthy savings buffer or to try and find ways to better grow their money.
“If inflation does rise closer to the Bank of England’s 2% target next year, then one of the few ways to generate above inflation returns could be investing some of the money into stocks and shares.”

These articles are provided for information purposes only.  Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties.  The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

Get more news and expert articles direct to your inbox

Sign up for a free research account to get the latest news and discussion, and create your own virtual portfolio.

Free Sign Up