Inflation rose slightly to 3.6 per cent in June, up from 3.4 per cent in May.
If prices are rising by 3.6 per cent, savings need to earn at least 3.6 per cent in interest on their cash to maintain the same buying power.
This also takes into account all savings rates, including fixed rates, which typically offer higher rates than easy access accounts.
Meanwhile, easy access ISAs – where savers do not pay tax on the interest earned – now typically offer 2.92 per cent interest.
“While higher inflation has the potential to slow the disappearance of the top savings rates, provided the pace of interest rate cuts slows, the downside is that higher inflation eats into savers’ returns.”
The Bank has been gradually lowering its rate over the past year as inflation has come down, meaning high street lenders have reduced their savings rates.
Yet experts are anticipating further rate cuts in the year and banks have been pricing this in, meaning interest rates on the high street have continued to fall.
What savers can do about it
According to Moneyfacts, there are currently 1,289 savings accounts that beat inflation. The majority of these (636) are fixed-rate bonds, but there are still 119 easy-access accounts with higher rates.
The best easy-access rates are as follows:
Top easy access saver is with Chase Bank at 4.89 per cent, which includes a 2.25 per cent bonus for 12 months. Top easy access cash ISA is with Plum, at 4.92 per cent.If you are able to lock your money away for a period of time, you can typically get a higher rate.
A one-year fixed bond means you can’t withdraw your money for one year, but in exchange, you get a fixed rate for the whole period.
“They should avoid settling for average too, because there are much better rates available among online banks and savings platforms.”
According to research by Fidelity, if you had invested £1,000 in a world tracker fund on New Year’s Eve 1999, you would now be sitting on around £5,000, while if you had opted for cash, you would have £1,700.
What’s next for inflation and interest rates?
The Bank of England has hinted that it intends to cut interest rates in August, but experts say the latest inflation figures could cast doubt on these plans.
“If the return of higher inflation becomes a trend, then the Bank might find it hard to keep lowering rates at a decent clip,” said Dan Coatsworth, investment analyst at AJ Bell.
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