Savers could get inflation-beating returns from cash for the first time since 2008 by the end of this year if inflation figures continue on their current trajectory, while interest rates remain higher for longer.
Having money sitting in cash doesn’t come as risk-free as we are used to thinking, but Rob Morgan, chief investment analyst at Charles Stanley, sees reasons for savers to be cheerful.
“Higher rates have been a welcome tonic for savers compared to the dismal returns of much of the past decade, and going forward there could be a better picture unfolding,” he said.
“Inflation is forecast to subside towards 4% by the year end while interest rates are anticipated to remain above 5% to ensure they do, resulting in meaningful inflation-beating returns from cash for the first time since 2008.”
With inflation proving very sticky, many households are kept on their toes with their daily spending, but inflation does more to individuals’ finances than just increase the costs of their utilities and the weekly shop, according to Andy Mielczarek, founder and chief executive officer (CEO) of SmartSave.
“Prolonged periods of high inflation diminish the value of savings in real terms. Thankfully, we're in a position now where higher interest rates mean opportunities to achieve competitive returns on savings.”
“However, not all banks have been passing better rates on to savings customers, essentially triggering a 'loyalty penalty' for savers who do not shop around.”
The onus is on consumers to consider where best to put their money to maximise returns as the gap between the best and worst savings products is “vast”/. “Anyone with a reasonable savings pot must assess which providers and products can help them grow it,” Mielczarek concluded.
The best yields are in the fixed-rate space, that is on those accounts that lock money away for a certain period of time, as shown by Moneyfactscompare data.
Based on a lump sum of £1,000, the highest payer is Union Bank of India, which offers 6.11% on a one-year term paid on maturity.
Just below it, Ahli United Bank yields 6.10% and can be opened via the Raisin platform.
Historically, committing to leaving the money untouched for longer would get savers better returns, but that’s not the case in today’s market, where rates are expected to come back down in the near future.
Therefore, 18-month and two-year fixed accounts only offer up to 6.05% yearly, decreasing to 5.80% for four and five-year products.
For savers who like the freedom to withdraw their money at any time, the best easy-access account is Santander’s Edge Saver, which stretches the rate to 7% with a 2.47% bonus for 12 months from £1 to £4,000. Over £4,000, however, it doesn’t pay an interest.
The Leeds building society pays 6.25% on its Shared Ownership Saver account on a yearly basis, while with Chorley Building Society’s easy-access account, savers can get 5.30% yearly.
All rates on easy-access accounts are variable, so it is crucial to check frequently and shop around.
Regular savings accounts are for putting aside small amounts each month and do offer higher rates, with Nationwide’s 8% on a maximum monthly deposit of £200 topping the list. First Direct offers 7% on up to £300 a month and Club Lloyds Monthly Saver 6.25% on a monthly maximum of £400.
For those with more money to stash away, the top easy-access rate on £10,000 comes from Chorley Building Society, paying 5.3%.