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The end of the short-lived cash era?

17 November 2023

Savers can now get inflation-beating returns from their savings accounts.

By Jonathan Jones,

Editor, Trustnet

It was fun while it lasted, but the window for getting in on high-yielding savings accounts could be coming to an end fairly rapidly after Office for National Statistics figures this week showed the UK consumer prices index (CPI) dropped to 4.6% in October – it’s lowest reading in two years.

The news is a boon to those at the Bank of England caught between the proverbial rock and hard place, who have been hiking interest rates to combat inflation at the risk of causing a recession.

Monetary Policy Committee (MPC) members have chosen to pause rates at the past two meetings to see how their previous hikes were affecting rising prices, which have come down significantly from their 11.1% peak in October 2022 but remain well above the Bank’s 2% target.

One of the few silver linings to rising interest rates has been the improved returns savers have enjoyed from cash and bonds. Savings accounts and fixed-term bonds rates have risen and are now as competitive as they have been in more than a decade.

Yet they have largely been unable to beat or even match rising price levels – until now. The top easy-access savings account rate is from Metro Bank paying 5.22% while the best payout from bonds is on a one-year deal. Again Metro Bank is leading the way, paying out 5.91%.

However, time waits for no man, as the famous saying goes, and there is no guarantee that these rates will be around for long.

Some predict that we have reached the end of the Bank of England's hiking cycle – off which savings rates are calculated. Most predict a pause, with cuts eyed at some point next year, which would bring the yields on offer down rapidly.

I have written in previous weeks about why those that want to should lock in top rates. Those that heeded this advice have already seemingly managed to get the best deal available.

Indeed, last week was the first time since June this year that investors were unable to get a fixed-term bond yielding more than 6% after Union Bank of India, the most recent provider to offer a fixed bond in excess of this, reduced the rates paid by its fixed rate deposits and Union Premier bonds.

Savers were hit with even more grim news this week, as Matteo Anelli wrote, when National Savings & Investments (NS&I) announced the new wave of its Green Savings Bonds would come with a 3.95% fixed-rate over a three-year term – some 1.75 percentage points lower than its previous issue.

Although the top rates do beat inflation, if interest rates have peaked – and it appears that they have, at least for now – there really is no time like the present to make the most of the rates on offer before they slip ever lower.

For those that prefer to invest, a core and satellite approach is a good way to play  markets at present, taking on the broader risk of equities while tilting into riskier assets. This is something Jean-Baptiste Andrieux has explored.

Meanwhile, investors can get cash-beating yields from some UK equity funds, as Anelli highlighted, with plenty of open- and closed-ended options to choose from.

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