A short tour of financial websites today reveals a number of bank savings accounts offering 2.5% gross per annum on your savings funds.
This is described as the current ’top rate of interest’, and the banks offering this rate currently lead the savings league table for instant access accounts.
A quick visit to the Bank of England, however, reveals that inflation is currently 3.1%. This means that, in real terms, the Bank expects price inflation to grow more quickly than the savings in the accounts cited above.
In other words, many savings accounts, while they may show a small increase in the amount of your savings, are losing you money, in terms of real value and buying power.
This may sound simple, but many of us fail to factor in inflation, when looking at savings income and savings rates.
The Bank of England base rate is now at an all-time low of 0.5%, where it has been for 18 months in succession. While this has been good news for homeowners with a mortgage, it has been a bleak year for savers suffering under the depressed savings interest rates offered by the banks.
Alternative savings options, such as a stocks and shares ISA, offer tax-free savings with considerably better prospects of keeping your money ahead of inflation, in the longer term.
As for the simple bank savings account, (a little) more really may be less, if the rate of inflation continues to rise.
