BANK ACCOUNTS

Savers urged to reconsider inflation bond investments

UK savers are being warned about investing into popular inflation-linked bonds, as new research shows that yields could be significantly less than regular accounts.

The bonds, which promise to beat rising prices, entice savers with promises of a real return on money deposited. However, figures reveal that this return is rarely realised.

Data from MoneyFacts shows that to beat inflation a basic tax payer of 20% would need a savings account paying 4.5% per year. A higher taxpayer at 40% would need an account paying at least 5.99% to beat inflation.

In the current market there are only 47 standard savings accounts, many of which are fixed rate ISAs.

These accounts offer a way that customers can counteract the effects of fluctuations in the financial markets.

Inflation made a 0.8% fall between December and January from 4.2% to 3.6%. This was the biggest dip for 14 months, following a peak of 5.2% in September. 

The reduced rate may mark a glimmer of hope for savers, but Sylvia Waycot, spokesperson for Moneyfacts.co.uk, argues that savers still need to be proactive:

“The expected fall in inflation heralds a change in fortunes for savers as more savings accounts finally offer a rate of return that beats inflation, something savers have long been desperate for.

“Today's accounts favour introductory offers which mask the lower rate that is applied on first anniversaries.“

Waycot went on to say that it’s critical that consumers revaluate their saving patterns:

“This means savers need to change their habits from mild interest to a state of ready alertness to changes in the savings account market.”

Saving under the current climate is difficult and a number of leading banks are offering grant introductory deals on their bank accounts.

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