Money Insider: Rising inflation hits savers

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The sharp rise in the rate of inflation announced this week spells potentially bad news for millions of savers.

When the cost of living is increasing, it's even more important to check the rate you're earning on your savings balance to ensure you're not losing out. The reality is that if you're currently receiving anything less than 1.875 per cent gross as a basic-rate taxpayer, then the value of your cash in real terms is being eroded. (As a higher-rate taxpayer, you'd need to find a gross rate of at least 2.5 per cent.)

With interest rates on variable-rate savings accounts averaging a mere 0.98 per cent gross, the latest Moneynet research revealed that almost four out of every five savings accounts are paying rates of 1.875 per cent or less.

Not surprisingly, the situation is even worse for higher-rate taxpayers, with more than 90 per cent of accounts offering a return of less than the 2.5 per cent gross rate required.

The message is clear: don't let your savings languish in a sub-standard account, even if it means switching your emergency or rainy-day fund to an account offering a 12-month bonus and then moving it again when the bonus falls away. For example, Citibank is paying 3.25 per cent gross on its instant-access flexible saver, but this includes a bonus element of 2.25 per cent for the first 12 months only.

To get a real return on the bulk of your savings, it's important to make full use of your ISA allowance and then take advantage of the better rates on offer in the fixed-rate bond market.

If you fix at the moment, you can still get 4.25 per cent from Birmingham Midshires for two years, right through to 5.35 per cent from Skipton Building Society if you're happy to commit your cash for a five-year term.

Fixed-rate frenzy as savers come and go

On the subject of fixed rates, there were plenty of comings and goings in the savings market this week and unfortunately some of the top paying bonds are no longer available.

The big news is that the one- and two-year growth and income bonds from NS&I have been withdrawn. It's no real surprise to learn that the sales targets for these extremely competitive products were achieved in just under 4 weeks. With the 3.95 per cent one-year growth bond now off the scene, the best deals for a 12-month fix are priced at 3.75 per cent from State Bank of India or 3.7 per cent from both Post Office and Julian Hodge Bank.

The two-year online bond from the AA at 4.35 per cent and the three- and five-year products from Yorkshire Building Society at 4.65 per cent and 5.3 per cent respectively were also pulled from the shelves in the past seven days.

However, there were some good new fixed-rate accounts launched courtesy of Close Savings with its Premium Gold range. There's a two-year fix at 4.2 per cent and a three- and four-year option, both at 4.65 per cent.

While these accounts require a £10,000 minimum investment, this may not be such a barrier as it first appears. According to research from Close Savings, more than three million people have more than £10,000 deposited in fixed-rate accounts and around 800,000 savers have more than £50,000.

If it's a regular saver account that you're interested in rather than lump-sum savings, the Chiltern Gold Mine from Buckinghamshire Building Society at 5.1 per cent gross fixed for 12 months is a best buy.

You must pay in between £25 and £250 per month for 12 consecutive months to qualify for this rate. It's also important that you understand the terms and conditions at the outset, as withdrawals or missed or amended payments will see your interest rate plummet to just 0.1 per cent.

Mortgage common sense from the Coventry

It's been a miserable 18 months for anyone with little or no equity in their home who needed to move due to a growing family or relocating for work.

Coventry Building Society has recognised this issue and this week introduced measures that will help its customers who have less equity as a result of lower house prices still to move home.

The Society is aiming to help responsible existing borrowers who have an excellent credit history. No additional borrowing is permitted but they will enable members who qualify to move to a new property at their existing Loan to Value (LTV) up to a maximum LTV of 125 per cent.

It's refreshing to see this sort of common-sense approach from a mortgage lender, and although Nationwide Building Society launched a similar niche offer back in July, I would like to see more of the mortgage market follow these examples and provide assistance to their creditworthy customers who have been impacted by falling house prices.

Andrew Hagger is a money analyst at

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