Money Insider: Savers hit by low rates and high inflation


There's been plenty for borrowers to cheer about in recent weeks with mortgage rates tumbling across the board and unsecured loan rates falling to their lowest for more than six years, but for savers it's the complete opposite – their situation has become absolutely dire.

Not only are people seeing their interest income diminish before their eyes as savings rates plummet, but to rub salt in to the wound, the inflation figures released this week reveal a sharp increase in the cost of living.

It's no real surprise to hear that inflation is on the up, you've only got to look at the fuel prices being charged on the forecourts as well as the week-on-week increase in the cost of your weekly food shop – and that's before the new gas and electricity price hikes kick in.

The Government and the Bank of England's monetary policy committee have ignored the plight of savers for over four years now, trying to keep rates low in the hope it will enable borrowers to spend more and keep the economy from grinding to a halt.

There's also a view that low mortgage rates will keep people in their homes and limit the number of defaults and repossessions.

The trouble is the money that borrowers are saving on lower monthly mortgage repayments has been swallowed up by the increased cost of living, and if and when interest rates do start to rise, then the affordability issues will start to surface and it won't be pretty.

With the Consumer Price Index (CPI) inflation measure currently hitting 2.7 per cent, it means basic rate taxpayers need to earn a gross rate of 3.375 per cent to maintain the spending power of their savings.

Three or four months ago that wouldn't have been an issue, but since the Funding for Lending scheme was introduced on 1 August, savings rates have fallen off a cliff.

Lenders are no longer relying on cash from savers, hence the reason why best-buy, instant-access accounts are only paying around 2.5 per cent, and in most cases if you want to earn more than the 3.375 per cent it means locking your money away for at least four years.

Despite protestations from MPs and consumer groups, the grim reality is this isn't going to get better anytime soon. In fact, many experts predict interest rates won't pick up for at least another 12-18 months, and as for inflation, the recent rise in fuel and energy prices could keep CPI well above the official 2 per cent target for much of 2013.

So as a saver, what should you do?

It depends on your personal circumstances, but if you're building a savings pot by putting money aside on a weekly or monthly basis, then unless you've got some expensive credit card or overdraft debt to clear, the message is to carry on saving.

While the icing on the cake, your interest, may be wafer thin at the moment, at least your capital will continue to grow and when interest rates eventually pick up, you'll be in a better position to benefit. In the meantime, keep a check on interest rates to get the best return you can.

If you're no longer in a position to add to your savings and rely on them to supplement your income, it's still worth checking the rates and switching your money to squeeze the most you can from the best-buy deals.

There are still dozens of savings accounts paying 0.1 per cent or less, and if your money is sitting in one of these it's time to move it elsewhere as you can easily earn 25 times as much.

If you want instant access to your savings, the best rate you can get is 2.52 per cent from West Bromwich Building Society and 2.5 per cent from Triodos Bank. Both these accounts include an introductory bonus for the first 12 months, so you'll need to switch again this time next year, but at least you're getting the top rate on your cash in the meantime.

If you can manage without access to some of your cash then it's possible to earn a fixed rate of 2.75 per cent for one year or 3.10 per cent for three years, both on offer from Tesco Bank and with the option of receiving your interest monthly.

No matter how low rates are, it's important not to give up on the savings habit – it will always be a smart financial strategy to put some money aside each month, no matter how little interest you receive.

Andrew Hagger is an independent personal finance analyst from

Independent Partners; request a free guide on NISAs from Hargreaves Lansdown

More than 90 years of car history are coming to an end with the abolition of the paper car-tax disc
newsThis and other facts you never knew about the paper circle - completely obsolete today
people'I’d rather have Fred and Rose West quote my characters on childcare'
Life and Style
The new Windows 10 Start Menu
Arts and Entertainment
There has been a boom in ticket sales for female comics, according to an industry survey
comedyFirst national survey reveals Britain’s comedic tastes
Bruce Chatwin's novel 'On the Black Hill' was set at The Vision Farm
travelOne of the finest one-day walks you could hope for - in Britain
footballManchester City 1 Roma 1: Result leaves Premier League champions in danger of not progressing
Arts and Entertainment
Gay and OK: a scene from 'Pride'
filmsUS film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
Life and Style
Magic roundabouts: the gyratory system that has excited enthusiasts in Swindon
motoringJust who are the Roundabout Appreciation Society?
Arts and Entertainment
Hilary North's 'How My Life Has Changed', 2001
booksWell it was good enough for Ancient Egyptians and Picasso...
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Trainee Recruitment Consultant - Birmingham - Real Staffing

    £18000 - £23000 per annum + Commission: SThree: Real Staffing are currently lo...

    Trust Accountant - Kent

    NEGOTIABLE: Austen Lloyd: TRUST ACCOUNTANT - KENTIf you are a Chartered Accou...

    Graduate Recruitment Consultant - 2013/14 Grads - No Exp Needed

    £18000 - £20000 per annum + OTE £30000: SThree: SThree are a global FTSE 250 b...

    Law Costs

    Highly Competitive Salary: Austen Lloyd: CITY - Law Costs Draftsperson - NICHE...

    Day In a Page

    Ebola outbreak: The children orphaned by the virus – then rejected by surviving relatives over fear of infection

    The children orphaned by Ebola...

    ... then rejected by surviving relatives over fear of infection
    Pride: Are censors pandering to homophobia?

    Are censors pandering to homophobia?

    US film censors have ruled 'Pride' unfit for under-16s, though it contains no sex or violence
    The magic of roundabouts

    Lords of the rings

    Just who are the Roundabout Appreciation Society?
    Why do we like making lists?

    Notes to self: Why do we like making lists?

    Well it was good enough for Ancient Egyptians and Picasso...
    Hong Kong protests: A good time to open a new restaurant?

    A good time to open a new restaurant in Hong Kong?

    As pro-democracy demonstrators hold firm, chef Rowley Leigh, who's in the city to open a new restaurant, says you couldn't hope to meet a nicer bunch
    Paris Fashion Week: Karl Lagerfeld leads a feminist riot on 'Boulevard Chanel'

    Paris Fashion Week

    Lagerfeld leads a feminist riot on 'Boulevard Chanel'
    Bruce Chatwin's Wales: One of the finest one-day walks in Britain

    Simon Calder discovers Bruce Chatwin's Wales

    One of the finest one-day walks you could hope for - in Britain
    10 best children's nightwear

    10 best children's nightwear

    Make sure the kids stay cosy on cooler autumn nights in this selection of pjs, onesies and nighties
    Manchester City vs Roma: Five things we learnt from City’s draw at the Etihad

    Manchester City vs Roma

    Five things we learnt from City’s Champions League draw at the Etihad
    Martin Hardy: Mike Ashley must act now and end the Alan Pardew reign

    Trouble on the Tyne

    Ashley must act now and end Pardew's reign at Newcastle, says Martin Hardy
    Isis is an hour from Baghdad, the Iraq army has little chance against it, and air strikes won't help

    Isis an hour away from Baghdad -

    and with no sign of Iraq army being able to make a successful counter-attack
    Turner Prize 2014 is frustratingly timid

    Turner Prize 2014 is frustratingly timid

    The exhibition nods to rich and potentially brilliant ideas, but steps back
    Last chance to see: Half the world’s animals have disappeared over the last 40 years

    Last chance to see...

    The Earth’s animal wildlife population has halved in 40 years
    So here's why teenagers are always grumpy - and it's not what you think

    Truth behind teens' grumpiness

    Early school hours mess with their biological clocks
    Why can no one stop hackers putting celebrities' private photos online?

    Hacked photos: the third wave

    Why can no one stop hackers putting celebrities' private photos online?