According to Moneyfacts.co.uk, only 44 of 669 savings accounts currently on the market can beat or match inflation.
In December there were four cuts to every rate rise. The number of rate decreases was 84 compared to 21 savings rate rises, with some deals falling by as much as 0.60% – much higher than the current Bank of England base rate of 0.25%.
Rate reductions in the savings market have now outweighed rate rises for 15 consecutive months.
Rachel Springall, finance expert at Moneyfacts.co.uk, said with further inflation increases on the horizon it was a “dreadful time” to be a saver.
She said: “It will be no surprise if we start to see savers sacrifice the necessity to make savings provisions for the future in favour of overpaying their debts, particularly as there is little interest to be gained on most savings accounts currently on the market. In fact, some savers feel it is pointless to shop around for a better deal, assuming poor rates are everywhere, despite the majority not knowing how their current rate stacks up.
“While savers may feel discouraged, it is still important to keep on top of the savings market, even if just a fraction more can be gained in interest. Since the start of 2017 we have seen a small selection of providers making minor improvements to their savings rates, which includes challengers such as RCI Bank, Post Office Money, Ikano Bank and Sainsbury’s Bank. While this is positive news, there is still a significant way to go before we can see rejuvenation in the market.”
The Nationwide FlexDirect account gives you the best interest rate on the market at 5.00% on the first £2,500 of your cash.
The Tesco Bank Current Account, the TSB Classic Plus and the Nationwide BS FlexPlus accounts all have an AER of 3.00%.
Slightly lower at 2% is the Bank of Scotland Classic with Vantage account and the Lloyds Bank Club Lloyds account.
“Savers would be wise to consider dividing their investments across regular savers, current accounts, fixed rates and instant access for the best possible chance of decent interest rates, while maintaining some flexibility. Failing this, savers who would typically be warier about where they place their hard-earned cash could turn to riskier investments to attempt inflation-beating returns, which is cause for concern if done without proper guidance,” said Springall.
Consumer price inflation rose more than expected to 1.6% in December, taking it to its highest level since July 2014.
The Office of National Statistics said that the main contributors to the acceleration in inflation were motor fuels, air fares, food and clothing – all of which have been hit by the weak pound.
Food producers have faced sharply rising input costs, while oil is priced in dollars.
Ben Brettell, senior economist at Hargreaves Lansdown, said that in the short term at least, inflation looked set to rise.
He said: “December’s producer price data contains a strong indicator that higher inflation is coming. Input costs rose 15.8% year-on-year – the highest figure recorded for more than five years. It’s unlikely cost increases of this magnitude can be fully absorbed by firms, leaving them with little choice but to pass some on to consumers in the coming months.
“The Bank of England says CPI inflation will exceed the 2% target by the middle of the year, though I wouldn’t be surprised if it happens sooner than that. Mark Carney also says the resulting squeeze on household budgets will cause the economy to slow as we move through 2017.”