Inflation doubles, leaving savers adrift

CPI hits 0.6%, but many savings deals do not even match this figure.

Inflation rose twice as fast in December compared to a month earlier, and with many top savings deals cut in half those trying to protect their cash have few options.

The consumer price index (CPI) rose to 0.6% in last month, up from 0.3% in November, according to today’s figures from the Office of National Statistics. 

Transport, and recreation and culture led the inflation rise, with the price of petrol, clothing and computer games increasing in December. Food prices fell, in particular cooked ham and cauliflowers.

Savers need accounts offering rates that outpace inflation to preserve the real value of their money. But data from Moneyfacts shows this is now much harder to do, as the top rates on savings deals have deteriorated at such a pace over the past year that some have been cut in half.

Now just 157 savings accounts beat December’s newly released 0.6% inflation figure. The number has fallen significantly since November’s CPI figures were announced last month, when 496 deals beat the 0.3% rate. 

Only one one-year savings deal beats the current level of inflation, according to Savings Champion, a 0.65% bond from Shawbrook Bank.

Easy access accounts, sought after for their flexibility, have been hit hard by rate cuts. Moneyfacts found that over the past 12 months the top deal has fallen by more than half, down from 1.4% to today’s best rate of 0.60% from ICICI Bank UK – on a savings pot of £20,000 that’s a loss of interest of £160 over one year. 

Rachel Springall, finance expert at Moneyfacts.co.uk, said: “As the economic outlook remains unpredictable and base rate [remains] at a historic low, it would not be too unsurprising to see further cuts as providers adjust their market position in response to an influx of cash into sought-after deals.”

Challenger banks and Islamic banks continue to take a firm place within the top-rate tables, so any savers looking to acquire the best possible return would be wise to consider these less familiar brands. “A good deal doesn’t last long on the shelf, so quickness is key,” cautions Springall.

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Standard savings accounts that can now match or beat inflation at 0.6% (on a £10,000 deposit) include three easy access accounts, 13 notice accounts, three variable rate ISAs, 51 fixed rate ISAs and 144 fixed-rate bonds, Moneyfacts found.

The predicted rate for inflation during the final three months of 2021 is 2.1%, but there are no standard savings accounts currently able to beat this.

In January 2020, 331 deals (210 fixed-rate bonds, 79 fixed-rate ISAs, five variable rate ISAs, 29 notice accounts and eight easy access accounts) could beat 1.3% (December CPI). In January 2019, only 86 fixed rate bonds could outpace 2.1% (December CPI), Moneyfacts data found.

However, Ulas Akincilar, head of trading at the online trading platform Infinox, points out that higher inflation could free up the chancellor to offer more help to individuals and sectors struggling with the economic hardships caused by Covid-19.

He said: “The 0.3% jump in overall CPI was more than many market-watchers had expected, and will ease the nerves of those who feared the UK was skidding towards deflation.

“That spectre has receded, and the headline rate of CPI is still low enough for the chancellor to be able to unveil additional fiscal stimulus in his March Budget without worrying about stoking inflation.”