‘A real return at last.’ How this 5.91% savings account is smashing inflation

Victoria Scholar on where interest rates go next

Savers can get an inflation-beating return for the first time in years and savers should grab this opportunity to boost the spending power of their hard-earned deposits. It’s been a long wait.

Consumer price inflation stood at 6.7 percent as recently September, far above any best buy savings rate at the time. It then plunged to 4.6 percent in October which means that more than 200 savings accounts beat inflation today, said Anna Bowes, founder of rate-tracking service Savings Champion.

Inflation is still a huge threat to your wealth, though, she said. “Falling inflation doesn’t mean prices have fallen. They are merely rising at a slower rate and that makes it vital to put your savings to work by getting the best rate you can.”

We are almost certainly at the top of the current interest rate cycle with markets saying there is a 95 per cent that the next movement will be a cut. That sentiment is already reflected in the best buy tables, Bowes said. “A month ago it was still possible to find a fixed-rate bond paying six percent or more. That is no longer the case.”

To take advantage you will need to shop around, rather than just depending on your high street bank to give you an inflation-busting rate, she added. “The savings rate tables are still dominated by the smaller challenger banks and building societies, so check them out.”

According to Moneyfacts.co.uk, Metro Bank leads the charge paying a market-leading rate 5.91 percent fixed for one year on a minimum opening sum of £500.

The drawback is that this is a linked product, which means you need to open another Metro Bank required or Instant Access account, unless you already have one.

For those who don’t want to do that, SmartSave pays an attractive 5.76 percent but demands a minimum £10,000 deposit. Otherwise, Secure Trust Bank pays 5.66 percent on a minimum £1,000.

Rates change literally by the day, so if you spot a good deal do not hang around.

Two-year fixed-rate bonds pay slightly lower with JN Bank paying 5.66 percent a year and Ford Money offering 5.65 percent.

JN Bank also tops the five-year tables paying 5.50 percent (although just a few weeks ago it was paying 5.80 percent). Hinckley & Rugby pays 5.30 percent.

Bowes said the big advantage of long-term fixed rates is that you are guaranteed to get that return, whatever happens to inflation. “If inflation continues to fall so will interest rates and locking in for the longer term now might look like a very sensible decision further down the line, as you could outpace inflation for years.”

Rates will stop falling as there is no expectation that the Bank of England will cut base rates in the immediate future, Bowes added. “Only tie money into a fixed-rate bond if you are sure you will not need it in that time, as there are usually penalties for early withdrawals.”

Variable rate accounts have held up slightly better, although they pay less than the best fixed-rate bonds.

Today, Metro Bank offers the UK’s best easy access rate of 5.22 percent on balances starting at just £1, which is comfortably above October’s inflation figure.

Again, there is a catch. This is inflated by a temporary bonus of 3.46 percent, which expires after 12 months so savers get a much lower rate thereafter.

Hampshire Trust Bank, Beehive Money and Close Brothers Savings, Cynergy Bank, Skipton Building Society and several others all pay 5.15 percent.

Andrew Hagger, banking and savings expert at MoneyComms.co.uk, said the downside with easy access accounts is that the rates are not fixed and can be slashed at any time. “When base rates are cut, they will almost certainly follow.”

Another issue is that many accounts that came to offer easy access often include restrictions, such as a limit on penalty-free withdrawals, while others use short-lived bonuses to inflate the return, so read the small print.

Hagger suggests a mix-and-match approach, keeping some cash on easy access while putting money you don’t need immediately into fixed-rate bonds.

Savers are lucky as they can beat inflation today, which hasn’t happened in ages. There is no guarantee this will last so take full advantage while you can.

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