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How have best buy easy-access savings rates compared to inflation?
Published:10:28 EDT, 19 August 2016 |Updated:14:22 EDT, 19 August 2016
Savers are being warned that worse is yet to come with a 'lethal cocktail' of crumbling rates offered by banks and building societies combined with rising inflation causing stagnant returns and further misery.
This week, RCI Bank cut the rate on its best buy instant-access account to just 1.2 per cent and despite this, remains the most competitive deal. At the same time, inflation is now 0.6 per cent.
This is important – if you can get a rate that beats inflation, then you are avoiding the dreaded savings erosion.
However, the gap between the best buy and inflation rate has narrowed since the start of the year and if that trend continues - policymakers predict inflation at two per cent by 2018 and interest rates remain low - savers will be facing up to even more pain.
Savings struggle: Banks are offering rock bottom easy-access rates to savers which don't match or beat inflation
Our research, alongside information website Moneyfacts, shows that it is currently far easier to obtain inflation-busting easy-access returns than previous years - even when rates were higher.
It comes despite August being a month of further misery for savers, with providers using the Bank of England base rate cut as justification for offering even worse accounts while Santander has announced it is halving the interest rate on its 123 current account.
However, despite that Santander drop – from three per cent on balances up to £20,000, to 1.5 per cent later in the year – it is still better than the best buy rate on a traditional savings account, the RCI Bank deal, at first glance.
The French-owned bank has topped the charts for a number of months - at the start of the year it offered 1.65 per cent.
Yet, despite wielding the axe, it is still the number one easy-account rate in the independent This is Money savings tables, showing just how hard it is to get a meaty return without risk or locking away cash.
It means someone with £10,000 in RCI Bank at 1.2 per cent will see a return of around £121 after a year. This compares to £151 with Santander, although you have to deduct £60 for its annual fee, making it a slimmer £91.
It makes the best rates available still in-credit balances on current accounts from the likes of Lloyds, Nationwide, Tesco Bank and TSB – but these have caps, some are only for a year, while there is no guarantee these rates won't also be cut shortly.
Charlotte Nelson, of information website Moneyfacts, says: 'With rates sliding savers have faced a constant battle to get a decent return on their savings in the past few years.
'Easy-access accounts have not been left untouched by the rate cutting trend with the average rate for easy access accounts falling from 0.91 per cent in July 2011 to 0.56 per cent in July 2016.
Inflation vs best buy: According to Moneyfacts data, since the end of 2014, you can obtain an easy-access account which beats inflation
Earlier in the week, the Office for National Statistics showed inflation was at 0.6 per cent.
This is the highest figure since November 2014, when it was one per cent after dropping like a stone in 2015, thanks partly to falling petrol prices, supermarket wars and lower energy costs.
It means the gap between inflation and easy-access rates have shrunk to 0.6 per cent. Policymakers believe inflation will hit two per cent by the start of 2018 - while it is unlikely savings rates will move in line with this.
According to latest data from Moneyfacts, in July, there were 16 savings rate rises.
Rate reductions in the same period stood at 154, with some deals falling by one per cent.
Moneyfacts says that while this is bleak news, the vast majority of the 727 savings accounts currently on the market beat inflation.
This is not the case with easy-access accounts at the big banks.
A This is Money investigation earlier in the month lifted the lid on some of the terrible rates currently offered on the high street, while others, such as Post Office continue to wield the axe.
It has revealed a 0.4 per cent cut to its popular online saver, from 0.65 per cent to 0.25 per cent – turning it from an inflation beater to a dud account.
So, how have best buy easy-access rates compared to inflation in the last five years?
Well, according to research for This is Money by Moneyfacts, savers looking for a straightforward account without any restriction to access don't have it that bad, especially compared to five years ago.
From July 2011 to the end of that year, the best rate on offer was from Nottingham Building Society at 3.26 per cent – this compares to peak inflation of 5.2 per cent, a 1.94 per cent gap.
In 2012, Coventry Building Society had the highest easy-access rate of 3.25 per cent compared to CPI at 3.6 per cent – a smaller gap of 0.35 per cent.
In 2013, the best rate was two per cent from Furness Building Society at two per cent compared to 2.9 per cent inflation – a gap of 0.9 per cent.
In 2014, the best buy rate was 1.65 per cent from Britannia, compared to 1.9 per cent inflation.
However, in 2015, the tables turned. Inflation dipped to a negative 0.1 per cent compared to a best buy easy access of 1.65 per cent from RCI Bank.
RCI have also had the best rate so far this year of 1.65 per cent. But, as the year has progressed, the gap between inflation and the top easy-access rate has shrunk from 1.35 per cent in January to the 0.6 per cent today.
Charlotte adds: 'Savers have been hit by all angles in the past five years dealing with low base rate, inflation, the government backed funding for lending scheme and worst of all providers simply not wanting savers' funds. Together all of these have proved a lethal cocktail for savings rates.
'Unfortunately, with the recent base rate cut savers will face some tough times ahead with rates being cut to new lows or products withdrawn completely.'
If savings cuts continue and inflation heads towards the Government's two per cent target, the outlook really could become bleaker for savers.