Some 80% of savings accounts now pay a higher interest rate than inflation, according to statistics from Moneyfacts Compare. It is a stark change of pace from just a year ago, when there was nowhere savers could put their money to keep up with rampant inflation.
This morning, Office for National Statistics data showed the UK consumer prices index (CPI) had dropped to 3.4%, a 0.6 percentage point fall from the January reading and lower than many had expected.
It means there are now some 1,365 savings accounts paying inflation-busting interest rates. Yet for the past two Februarys (2023 and 2022) there were none that beat the pace of rising prices, when inflation stood at 10.4% and 6.2% respectively.
James Hyde, spokesperson at Moneyfacts Compare, said: “This fall in CPI means that 80% of standard savings accounts currently beat inflation, a far cry from this time last year when none were able to do that.”
Now could be a good time to lock in rates, as the Bank of England’s projection is for inflation to sit at around 2.8% by the first quarter 2025, he noted.
“This should allow consumers plenty of options to see real term returns on their cash savings,” he said.
There has been a mixed reaction in the savings market, however. Some rates have fallen slightly over the past month, either in reaction to increased demand or in anticipation of future interest rate cuts by the Bank of England later this year.
Yet others are increasing the rate paid – something that is common at this time of year, particularly among ISA accounts, which attempt to hook in last-minute savers cramming in money before the tax-year deadline.
“The new tax-year in April is less than a fortnight away and savers who wish to utilise their full ISA allowance now have limited time to do so. Providers would traditionally improve their ISA rates, as competition for last-minute investment intensifies,” said Hyde.
However, at present, top variable rates across savings accounts and ISAs continue to “hold very steady” as they have in recent months. “Though any potential reduction in base rate may precipitate more movement in this area of the market,” he noted.
Despite the Financial Conduct Authority’s focus on Consumer Duty, big banks are failing their customers with rates far below the rest of the market, Hyde warned.
“It remains crucial, as ever, that savers consider all options available to them and are prepared to switch if they could be better served elsewhere. However, it’s always wise to check the terms and conditions of all accounts regardless of their headline rate, as some may have restricted accessibility or availability,” he said.
At present, a saver with a £10,000 lump sum who has already maxed out their ISA can get the best rate with a one-year fixed-rate bond from MBNA, which pays 5.27%.
The top notice account from Hinckley Rugby Building Society pays 5.25% with a 180-day notice period, while the best rate on an easy-access account comes from Ulster Bank, paying 5.2%.
Rates for those savers wanting to lock their cash away are slightly lower. At two years, Oxbury Bank offers the best deal with a 5.11% rate, while UBL UK is the top payer over three, four and five-year fixed-rate terms. Its rates are 4.85%, 4.54% and 4.95% respectively.
For the last-minute ISA savers, a one-year fixed from Virgin Money is the top choice, paying 5.25%, while the best easy-access account from Moneybox pays 5.11% and includes some bonuses.
West Brom Building Society’s 5.1% is the top notice account – with savers able to pull out money in 60 days.
UBL UK dominates the longer bond periods once again, taking the top spot for two (4.81%), three (4.59%), four (4.3%) and five years (4.52%).