Every little helps in war against inflation
Price rises are chipping away even further at people's savings but there are still ways of earning more interest
Julian Knight is the Money and Property editor for the Independent on Sunday and interim Economics Correspondent, previously he was the personal finance reporter for BBC News and has published seven books.
Sunday 18 November 2012
Inflation is on the up again and is predicted by the Bank of England to carry on rising through most of 2013. This is yet another blow to savers who have faced years of low returns. Inflation can eat away at savings in a fairly shocking manner; if you had invested £10,000 five years ago, allowing for average interest and tax at 20 per cent, it would be worth just £8,899 in terms of spending power today.
"Now is the time for people to stop watching their savings get eaten alive by inflation and greedy banks and move at least some of their money to where it will actually grow in value, even after inflation," says Giles Andrews of the peer-to-peer lending site Zopa.com. For basic-rate taxpayers keeping pace with current inflation means earning at least 3.37 per cent, or 4.50 per cent for higher-rate taxpayers.
At present, there are just three inflation-beating fixed bonds and 37 ISAs (individual savings accounts) for basic-rate taxpayers including the Triodos Five-Year Ethical Savings Bond paying 3.75 per cent and the Coventry Building Society 60-Day Notice ISA paying 3.25 per cent, while higher-rate taxpayers are stuck with the grand total of zero non-ISA inflation-beating accounts, according to Moneyfacts.co.uk.
Although there are no standard easy-access accounts or notice accounts on the market that beat inflation, the difference between the average rates on offer and the best buys can be significant. So, even if you don't want to lock your money away in a bond or you have already used up your ISA allowance, you can still limit the impact.
"Even if savers are able to just beat the market average any extra return they could get for the money is better than sitting in a low-rate account," says Charlotte Nelson of Moneyfacts.co.uk. "For example the average one-year fixed rate pays 2.26 per cent today. However, if you invest in the highest-paying one-year fixed rate bond you would achieve a rate of 3 per cent, which would be £74 extra in interest if £10,000 was invested."
You are likely to find better deals away from the traditional high street banks, says comparison site MoneySupermarket, which points to Tesco Bank's Internet Saver account, which offers a rate of 2.40 per cent (including a bonus rate of 1.15 per cent over 12 months), compared with the best deal on the high street, Halifax's online saver paying just 2.05 per cent, albeit without a bonus.
This is a good opportunity to investigate other products. Offset mortgages can combat paltry savings rates, particularly for higher-rate taxpayers. Here, the bank links your savings to the outstanding mortgage balance, so, on a £100,000 mortgage with £10,000 in savings, you would only pay interest on £90,000. Instead of earning interest and paying tax on your savings, you use that money to pay less interest on your mortgage (which is at a higher rate than you could find in the savings market) and can effectively overpay each month to clear your mortgage early.
Derek Pain: I'm cautious, but remain one of the few bulls in the market
Donald MacInnes: Who would want to be a Barbie girl in a non-Barbie world?
Mark Dampier: How to get an income now that savings are past the 'use by' date
Thousands of UK investors could lose out following collapse of Secured Energy Bonds
Bargain Hunter: Fly off for a winter break in France or Portugal for well under £100
- 1 Venezuela Expo Tattoo 2015: Extreme body art from 'Vampire Woman' to 109mm earlobes
- 3 Ball pool for adults opens in London
- 4 Amal Clooney gives excellent response to fashion question at European Court of Human Rights
9 reasons Greece's experiment with the radical left is doomed to failure
Have we reached 'peak food'? Shortages loom as global production rates slow
Greece elections: Syriza and EU on collision course after election win for left-wing party
British grandmother Lindsay Sandiford faces execution by firing squad in Indonesia
Liberal Democrat minister defends comments suggesting immigration causes pub closures
King Abdullah dead: We can't afford not to hold Saudi Arabia's royals to account
iJobs Money & Business
£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...
£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...
£13000 per annum: Recruitment Genius: This Pension Specialist was established ...
£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...
Day In a Page
A minimnalist four-bedroom home designed to the highest spec, featuring glass walls and a kitchen space lit by a glass roof
Hibernate during winter and make your living during the summer at this busy guesthouse with panoramic sea views, in the village of Lynton
A four-bedroom penthouse next to the Tate with direct views of St Paul's from two floors of luxurious living space
A four-bedroom detached home surrounded by spacious gardens and woodland, close to New Pudsey
An 18th-century, three-bedroom home near Langstone Harbour built from ships beams with vaulted ceilings and wood burning stoves
A five-bedroom semi-detached home with a mix of period and modern features in a popular and convenient location
This five-bedroom red-brick beauty overlooks the village green and sits in just under two acres of land
A three-bedroom villa with self-contained flat, minutes from Lake Windermere
A deceptively spacious, beautifully presented Georgian home with 3000sq ft of living space and five reception rooms
A five-bedroom Victorian home with four receptions, superb gardens and paddock in Pembury
An eight-bedroom house on the south side of the The Green with cinema, wine cellars and summer house
This 17th century beauty is full of rustic cosiness, while the detached home office means you can also run a business
Four exclusive apartments in a Grade II-listed former medical school with 2,275 sq ft of living space and 18ft ceilings
A five-bedroom terraced house on the popular Peterborough Estate, ideally located for both Eel Brook Common and South Park
A state-of-the-art farm-building conversion on the former Cliveden Estate, with 11,420sq ft of internal space, cinema and wine cellar
A three-bedroom, 15th-century cottage with original features in the picturesque village of Sissinghurst
A six-bedroom terraced house with large south-facing roof terrace, cinema room and wine cellar
A new seven-bedroom home built in Queen Anne-style with swimming pool and parkland views in Mortimer
A listed, four-bedroom farmhouse in the rural hamlet of Rushall with detached barn, four acres of gardens and paddocks
A first-floor flat with two bedrooms, a spacious reception room and communal grounds in a leafy part of London
A three-bedroom flat with a spacious rootop terrace and balcony, accessed from a private gated courtyard
A Grade II-listed pile with six bedrooms, stables and 39 acres of grounds in Standlake
A two-bedroom flat with boutique hotel-style interiors, close to the foodie haunt of West End Lane
A two-bedroom flat in a beautiful old vicarage, with many original features, close to the city centre
A three-bedroom 16th-century home with an aga kitchen, private gardens and heated outdoor pool, in Hadleigh
A three-bedrom home in sought-after Queen's Gate Mews, with Italian marble-finished bathrooms
Surrounded by glorious countryside in the village of Udimore, sits this impressive four-kiln oast and barn conversion
A five-bedroom house in the picturesque village of Kettlewell, north Yorkshire
An 18th-century former coaching inn with original staircase, open fireplaces and beams throughout
A Grade II-listed Georgian town house with three bedrooms and a south-facing courtyard, near Arundel Castle
Feel on top of the world at this über chic penthouse on the 37th floor of one of Europe’s tallest blocks.
A Grade II-listed Victorian villa with six bedrooms and two further cottages, all with spectacular sea views
A grade II-listed, Georgian cottage with mature 50ft garden, perfect for summer entertaining
A magnificent Georgian pile with turrets, seven bedrooms, a heated pool and four acres of gardens
Fairoak Farm has five bedroom suites, gym, outdoor swimming pool and golf course
Chic two-bedroom river-fronted flat with a private lift that delivers you directly to your home
A spectacular seven-bedroom Tudor pile, once owned by Henry VIII, with 18 acres of land
A seven-bedroom Georgian property previously used as a picturesque wedding venue
A split-level flat in a church conversion with two en suite bedrooms and 1,200sq ft of living space
A three-bedroom bungalow situated behind an impressive stone wall, £645,000
Windsor Castle overlooks this three-bedroom Victorian cottage located on one of Windsor's smartest roads
Chapel House is a former vicarage with nine bedrooms in the beautiful Upper Wye Valley
A five-bedroom B&B and separate owner's accomodation with potential for conversion