SIMON LAMBERT: Savings rates are up and inflation is down, but it’s losing track of accounts that costs us dear By Simon Lambert for Thisismoney.co.uk Published: 01:00 EST, 17 January 2019 | Updated: 03:37 EST, 17 January 2019 Good news. You can now get a one-year savings account that matches inflation. The ONS revealed yesterday
SIMON LAMBERT: Savings rates are up and inflation is down, but it’s losing track of accounts that costs us dear
Good news. You can now get a one-year savings account that matches inflation.
The ONS revealed yesterday that consumer prices inflation had dropped to 2.1 per cent. Meanwhile, the best one-year savings deal on the market is from Gatehouse Bank, paying the exact same rate.
The better news is that inflation is meant to continue to fall, while savings rates are tipped to keep rising.
But even if inflation stays the same and savings rates stick too, you should be able to make sure the value of your money isn’t eaten up.
How many of us will though? Low rates have dented our returns, but an even greater drag can be losing track of the rates you are earning on accounts and leaving cash sat in those now paying very poor rates.
So, in theory, we should at least track it down and shift savings we won’t need in the next 12 months to an account that matches inflation, such as Gatehouse’s
There’s a caveat in that Gatehouse is a Sharia-compliant bank and so rather than interest it pays an expected profit rate.
It’s unlikely to happen, but you might not get that rate of return. Your capital is not at risk, however, as Gatehouse is protected by the FSCS compensation scheme.
If you don’t fancy Gatehouse, then the next nearest rivals in the one-year fixed rate market are a whisker off inflation, with Atom paying 2.05 per cent, Charter Savings, 2.03 per cent, and Paragon 2.01 per cent.
On a £10,000 deposit we’re talking a £9 difference over a year between Gatehouse’s £210 return and Paragon’s £201 interest, which most savers could probably live with.
Things certainly look better than they have done for some time, after inflation rocketed way above savings rates in the wake of the pound’s fall after the Brexit vote.
They should also continue to improve.
Inflation might tick back up again slightly – it’s being dragged down by lower petrol prices and air fares – but it is forecast to be on a downward trend.
Interest rates, on the other hand, are supposed to keep rising, albeit very slowly.
It remains to be seen whether the Bank of England holds fire on rate rises this year due to the muddle over Brexit – particularly if we take a spin down the road marked No Deal – but it has a renewed appetite for inching them up.
Regardless of that, savings rates could keep rising. Banks no longer have the same access to cheap funding from the Bank of England that they previously had and are a bit keener to get savers’ cash in, with the challenger banks particularly hungry for it.
Crucially, inflation is a backward looking measure (that 2.1 per cent December figure is the official one for 2018), while a savings interest rate is the promise of a return in the future.
To me, this makes a one-year savings fix a decent prospect.
The gap in rates between the best one-year fix and three-year fix is small – 2.1 per cent compared to 2.3 per cent. It doesn’t seem to make sense to lock in for that long at a time when rates should continue to rise – and if the economy can stay on an even keel, banks and building societies will want savers’ cash to allow them to grow their loan books.
But what you do need to do is keep an eye on your savings and make sure you have a blend of the best possible easy access and fixed rates. And this is where most people fall down, as they lose track of a muddle of accounts, with some inevitably slipping on to low rates.
That makes the rise of a number of new savings platforms an interesting prospect. Raisin’s marketplace and Hargreaves Lansdown’s Active Savings offer a limited number of accounts, but let you manage a selection in one place.
You might get a better rate elsewhere, but you may also be more likely to lose track.
We will be looking at these in more detail soon, in the meantime check your interest rate and use our savings tables to see if you can beat it.
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