- Top easy access rate now 3.05 per cent - over six times that of Base Rate
Today's announcement by the Bank of England that inflation hit 4.4 per cent may appear to be bad news for savers, but according to moneysupermarket.com analysis, savers are actually benefiting from some of the widest margins between the top easy access rates and Base Rate since the latter fell to a record low over two years ago.
The current average rate on the top five easy access accounts has reached a 16 month high at 2.87 per cent. The top paying easy access account currently pays 3.05 per cent, which is over six times the current Bank of England base rate - far higher than the average saving rate in the market of just 0.8 per cent.
Average easy access rates in relation to Bank of England Base Rate
While many consumers will believe there is little point in moving to a new savings account due to high inflation, anyone taking advantage of the renewed competition in the markets will lessen the impact inflation has on the real value of their savings.
To beat inflation, basic rate tax payers will now need an account paying at least 5.51 per cent to gain benefit in real terms from their savings, increasing to 7.34 per cent for higher rate tax payers. However, only a handful of savings accounts will pay higher than this rate.
Of the 241 easy access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax, but there are ways to lessen the impact of inflation on your savings. The best paying easy access account is Nationwide's MySave Online Plus paying 3.05 per cent.
Regular savers only fair slightly better with two of the 39 regular savings accounts paying interest higher than 7.34 for higher rate tax payers.
Anyone looking for a cash ISA should be aware that not one of the 93 cash ISA accounts currently pay above 4.4 per cent, which is the rate needed for a return above inflation.
Kevin Mountford, head of banking at moneysupermarket.com said: "Low Base Rate and high inflation has become a real headache for beleaguered savers and as a result many will be waiting for Base Rate to rise before moving accounts as they don't think moving is worthwhile. However, the reality is that high inflation is likely to be with us for some time and any increases in Base Rate are likely to be gradual. We are currently seeing healthy competition in the savings market with banks and building societies fighting for funds. As a result, rates have risen to unprecedented levels in relation to Base Rate. Those savers waiting for rates to rise are missing out by failing to maximise their savings pot.
"Given the low number of products which currently offer a return above inflation, savers really need to keep a closer eye on their interest rate and be prepared to switch to a better deal. Sitting on a low interest rate is not an option if you are concerned about inflation. The difference between the average and top paying rates is considerable, so switching to a better deal should be a no-brainer. Utilising your tax free ISA allowance this year and next year when the amount you can put away in cash increases to £5,340 should also be high up savers' priority list. Always making sure your savings are in an account which pays a good rate of interest may not beat the eroding effect of inflation, but it can certainly limit the impact."
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