2013 has seen a drastic improvement in the situation for those looking to make the most of their savings. At the start of the year, only three accounts offered an interest rate capable of beating inflation. Following the recent drop in inflation to 2.1%, there are not 51 accounts on the UK market that offer enough interest to beat inflation.
Of these 51 accounts, 24 are cash ISAs and 27 are fixed-rate bonds. However, you are required to tie up your money for at least three years if you want to benefit from inflation-beating interest rates.
These figures apply to those who pay tax at the basic rate, at least in the case of accounts that are subject to tax as opposed to ISAs. In order to still beat the inflation rate after tax, basic rate taxpayers need an account to pay at least 2.63% interest. New three year savings accounts that fit into this category have recently been launched by both Leeds Building Society and Virgin Money, both offering an interest rate of 3%.
However, higher rate taxpayers will still face more difficulty in finding an account that will grow their savings at a rate that counters or exceeds depreciation from inflation. At least 3.5% interest will be required after tax, meaning that savers in this category will have to turn to seven year bonds to find sufficient rates.
MoneyComms expert Andrew Hagger recommends sticking to accounts that tie up your savings for two years at most. He points out that the difference in rates between these accounts and their three year counterparts is not large, meaning that there will not be a very big difference in earnings unless you are investing a very large amount of money. The shorter terms make it easier to switch accounts when in line with changes in rates, which can ultimately lead to benefits as well as simply meaning your funds are not tied up for as long.
A recent addition to the market for these two year accounts includes a 2.4% fixed bond from Shawbrook Bank, which is currently a market leader. This rate compares to 2.65% for the same bank’s equivalent three year bond.
Regarding the current state of rates, Hagger points out that there is “plenty of noise” surrounding data on the issue at present. This is partly due to the Funding for Lending, scheme, which is due to reach an end next year.
