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Savers squeezed as surging living costs wipe out returns

·4-min read
Moneyfacts said the buying power of savers’ cash is being eroded by inflation (PA) (PA Archive)
Moneyfacts said the buying power of savers’ cash is being eroded by inflation (PA) (PA Archive)

The buying power of savers’ cash is being eroded by inflation, with not a single standard savings account on the market able beat surging living costs, according to a financial information website.

The rate of Consumer Prices Index (CPI) inflation has accelerated to a near-decade high of 4.2%.

A year ago, 227 savings deals, including Isas bonds, and easy access and notice accounts beat the rate of inflation at that time, according to Moneyfacts.co.uk.

But now there is not one standard cash savings account available that can outpace 4.2%, it said.

The top easy access savings account on Moneyfacts’ tables pays around a sixth of the rate of CPI inflation. The deal, from Shawbrook Bank pays 0.67%.

For those willing to give some notice to access their cash, Secure Trust Bank offers 1.10% interest.

In real terms, inflation is still taking its toll even on the best rates

Rachel Springall, Moneyfacts.co.uk

Some savings and mortgage rates have been creeping up recently, amid providers’ expectations that the Bank of England base rate will soon rise.

But with living costs rising significantly faster than the returns available on savings, the real value of savers’ cash is shrinking.

The top one-year fixed-rate Isa on Moneyfacts’ tables is a 1.00% deal from the West Brom building society.

Rachel Springall, a finance expert at Moneyfacts.co.uk, said: “Interest rates on savings accounts on average dropped to record lows this year so the continued improvements to the top cash savings rates is positive, but in real terms inflation is still taking its toll even on the best rates.

“The murmurings of a base rate rise could mean a further uplift to interest rates, but savers would be wise not to wait around for this to come to fruition. Competition among challenger banks and building societies is evident in the top rate tables and savers would be wise to act with pace to take advantage.”

Jason Hollands, managing director of investment service Bestinvest, said: “I would urge people to think about whether they have the right balance between cash savings and longer-term investments.

“Many households were able to build up their savings during the repeated lockdowns, but the surge in inflation threatens to erode the real value of these cash war chests. While it is very wise to keep a cash buffer for short-term needs and emergencies, holding too much cash for long periods of time will see the real value of this wealth eaten away by inflation.”

Sarah Coles, a personal finance analyst at Hargreaves Lansdown, said many savers have their cash in easy access accounts paying as little as 0.01% with some high street banks.

She said if inflation continues to run at current levels “and you had £1,000 sitting in one of these accounts, it would erode around £40 of the buying power of your money”.

(PA Graphics) (PA Graphics)
(PA Graphics) (PA Graphics)

Homeowners facing rising household bills could also find the cost of their mortgage edging up when they come to take out a new deal.

A mortgage price war broke out earlier this year, with several lenders launching deals with rates below 1%. However some rates are now edging up amid lenders’ expectations that the Bank of England is poised to raise the base rate soon.

According to Moneyfacts’ figures given to the PA news agency, at the start of this month there were 59 residential mortgage deals available with rates below 1% but by Wednesday this total had shrunk to 45 deals.

In a further indication of how quickly the cheapest mortgage deals are disappearing, on October 19 Moneyfacts had counted 137 such products available at sub-1%.

Those trying to get on the property ladder are also facing a £28,000 increase in the average UK house price over the past year.

Office for National Statistics (ONS) figures released on Wednesday show the average house price has reached a record high of £270,000 after surging by £28,000 annually.

Ms Coles said: “If you’re one of the two million people on a variable rate mortgage, it’s seriously worth considering fixing your rate now.

“Mortgage rates have already started to rise, but there are still some exceptional deals available, so unless you have a hefty exit fee that makes any move too expensive to contemplate, it’s worth considering your fixed rate options.”

Read More

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Rents ‘rising at fastest pace in 13 years’

Cash Isa rates moving up from previous record lows

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