Boon for savers as inflation (finally) goes down

Inflation has fallen for the first time since March, offering respite for savers who have been struggling to find inflation-beating savings accounts.

According to the latest data from the Office of National Statistics, the Consumer Price Index (CPI) 12-month rate was just 2.4 per cent in September, down from 2.7 per cent in August. This was despite widespread expectations that CPI would rise to 2.8 per cent in September.

Lower food prices and cheaper transport fares contributed to the lower cost of living, which managed to counteract the rising costs of energy.

The lower rate of inflation means that households will be able to get better value for money on day-to-day expenses.

As inflation moves closer to the Bank of England’s target rate of two per cent, it also raises the possibility of another increase in the base rate, which would encourage banks to raise their savings rates.

However, financial experts warned that there is still some way to go before savers feel the benefits.

“The truth is that in the current low interest rate environment savings struggle to keep pace with the rising cost of living,” said Charles Haresnape, chief executive of Gatehouse Bank.

“Savers need to make their money work as hard as possible. The savviest will be looking to the rates offered by smaller banks – including those with ethical philosophies – which typically pay higher rates, to try and combat the very worst effects of inflation.”

According to analysis from investment platform Hargreaves Lansdown, there are only 19 savings accounts which currently offer more than 2.4 per cent in interest, and all of these accounts are fixed-rate deals. This means that everyone with money in an easy-access account is losing money once inflation is taken into account.

“The key is to put your money in the right place – with emergency cash in an easy access account, and money you are saving for a year or longer in a fixed rate account in return for a higher interest rate,” said Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“You also need to stay active and move your money when a deal expires. Online savings marketplaces can make this more straightforward.”

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.