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Act now for inflation-busting savings accounts

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The annual rate of inflation in the UK fell to 1.4% by the end of December, according to figures released by the Office for National Statistics (ONS) on the 15th of January. This is the lowest annual rate of increase in the Consumer Price Index since October 2016.

The figures signal two noteworthy developments:

  • at 1.4%, the rate of inflation is lower than the latest statistics relating to growth in wages, which stands at an estimated 3.3% (according to a report by the BBC on the 16th of January) – theoretically boosting the capacity for earners to save; and
  • since it is close to the 2% increase projected by the Bank of England, it gives further credibility to a reduction in the base rate sometime soon.

Although there is typically some delay between any reduction in the base rate and the rates offered by high street and online banks, now might be the time to strike by investing in inflation-busting savings accounts. There are currently quite a few to choose from – so you might want to act now before banks react to any reduction in the base rate.

In fact, a recent news report revealed that the number of savings accounts which match or beat inflation has risen to its highest level in nearly three and a half years, after December’s fall in inflation. Citing a study, at the time of writing, there are now around 438 savings accounts paying at least the Consumer Prices Index of 1.3%.

Choosing your savings account

As ever, of course, the longer you commit your savings to any account, the higher the rate of interest you might expect. Instant access accounts – where you can withdraw your savings on demand – typically offer lower rates of interest on your savings compared to notice or fixed-term accounts, where you may need to lock away your money for several years.

When making your choice, you might also want the security of knowing that under rules from the FSCS (Financial Services Compensation Scheme) any fully-regulated UK bank offers up to £85,000 protection of your funds in the event of the bank failing and going under.

Here are some examples of current inflation-busting accounts – these are purely to highlight the different options currently available and should not be seen as financial recommendations.

Instant access

  • the Money Saving Expert picks Marcus – an arm of multinational Goldman Sachs – as the highest-earning instant account, paying 1.35% on savings of between £1 and £100,000;

Notice accounts

  • if you are prepared to give 95 days’ notice of any withdrawal, Moneybox currently offers a savings rate of 1.65% on accounts from £1 to £85,000;
  • for a shorter period of notice – 60 days but only up to three withdrawals a year – you might want to choose the Secure Trust Bank’s rate of 1.5%, which still busts the current rate of inflation of 1.4%.

Fixed-rate savings accounts

If you are prepared to tie up your savings for a year or more, there are many inflation-busting savings accounts from which to choose:

One-year fixed

  • among the highest paying one-year fixed accounts is Atom Bank’s 1.65% - on a minimum amount of £500 up to a maximum of £100,000;

Two-year fixed

  • UBL UK is currently offering 1.8% on two-year fixed accounts with a minimum deposit of £2,000 up to £1million;

Three-year fixed

  • UBL UK once again comes out the winner, with a savings rate of 2% on deposits between £2,000 and £1million;

Five-year fixed

  • the Secure Trust Bank is currently offering a rate of 2.06% on its five-year fixed rate accounts on deposits between £1,000 and £1million.

With a careful search, you may be able to find an instant access savings account which yields slightly more than the current rate of inflation. By committing your savings for a longer period, you can comfortably stay ahead of today’s rate of inflation.

Any data cited in this article is correct as at the time of writing.

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