How to bolster your savings against an impending rate cut and price rises 


How to bolster your savings against an impending rate cut and price rises

Tackling inflation sounds like a job for the Chancellor of the Exchequer rather than the average saver, but people looking to see their cash savings grow rather than shrink have got to get more savvy.

With inflation now running at a new low of 1.3 per cent there are plenty of saving accounts available that enable savers to earn an inflation-busting return. 

But with fears of an impending cut in Bank rate, savings experts are advising that it might be best to lock your money into the best rate you can for as long as you are able.

With inflation now running at a new low of 1.3 per cent there are plenty of saving accounts available that enable savers to earn an inflation-busting return

With inflation now running at a new low of 1.3 per cent there are plenty of saving accounts available that enable savers to earn an inflation-busting return

Inflation measures the change in the value of money over time and today’s rate means that a basket of goods which would have cost £100 a year ago now costs £101.30. To make sure your money is increasing in value faster than inflation, it is vital to have an interest rate greater than 1.3 per cent. 

Anna Bowes, founding director of advice service Savings Champion, says: ‘For the first time in ages there are many savings accounts which match or beat inflation and it’s really important to find and fix at the best rate and not just leave it languishing in a bank account. The moment that inflation rises back above 1.3 per cent there will be far fewer such accounts, and inflation can really damage your savings.’

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If you put £50,000 in a typical bank savings account with one per cent interest, after five years it will have turned into £50,251. However in real terms, taking inflation into account, it will only be worth £47,108. So your money will actually have lost value.

But if you put the same £50,000 into an easy-access saving account with Gatehouse Bank which currently offers 1.4 per cent interest, after the same five years your £50,000 will have turned into £53,599. In real terms it will be worth £50,247.

Inflation-busting current accounts include Nationwide’s FlexDirect, which pays 5 per cent interest for the first 12 months on balances up to £2,500.

Savers looking to the long term can opt for United Bank’s five year fixed term deposit at 2.38 per cent or its five year fixed rate cash Isa paying 2.03 per cent interest which means that even if there is an interest rate cut, your money is locked into that rate. 

The two United Bank accounts are covered by the Financial Services Compensation Scheme.

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