More than 600 savings deals now match or beat inflation after prices rose by their lowest level in May since the 2016 Brexit referendum, but with rates at record lows the news will bittersweet for savers.
The consumer prices index measure of inflation stood at 0.5 per cent in May, a four-year low and the fourth successive month in which inflation has fallen, according to the Office for National Statistics.
The fall, driven by lower pump prices and cheaper games and toys, means that 645 savings accounts and tax-free Isas now pay 0.5 per cent or more, according to analysts Savings Champion.
Spoiled for choice: 645 savings accounts and tax-free Isas now beat inflation, but this is only because prices hit a four-year low. With savings rates at record lows, a rebound inflation will leave savers out of pocket
That is up from the 496 accounts which matched April's CPI reading of 0.8 per cent, and far more than the just 39 which topped February's reading of 1.7 per cent.
While it is a rare slither of good news for savers who are grappling with providers adjusting best buy deals almost daily and savings rates hitting record lows, especially with inflation predicted to fall even further, if price rises return to the Bank of England's target of around 2 per cent they will lose money in real terms.
Even though 59 easy-access accounts currently pay at least 0.5 per cent, the best rate on the market is just 1.15 per cent and the average easy-access rate just 0.27 per cent.
Just three months ago the average easy-access rate would have beaten May's inflation reading.
Earlier this year 17 easy-access accounts paid at least December's CPI reading of 1.3 per cent, revealed in January, and the top rate paid 1.45 per cent.
Simon French, chief economist at investment bank Panmure Gordon, expected inflation to 'head lower before rebounding next year', and added easy-access savings accounts which beat inflation in 12 months 'are likely to be as rare as hens' teeth.'
And Anna Bowes, co-founder of Savings Champion, said: 'If and when inflation rises to anywhere near the government target, these low cash rates will struggle to beat it.'
Many savers are also looking to short-term fixed-rate bonds of one-year or less in a bid to protect themselves from interest rate cuts from banks and hopefully emerge on the other side to a world with better savings rates.
The 12-month CPI reading fell to 0.5% in May, down from 0.7% in April and 1.7% in February. The ONS said continued falling fuel prices were largely responsible
However, the Bank of England base rate could stay at as low as 0.2 per cent until 2022, and savers who lock into one-year deals at the moment could be hit hard if inflation comes roaring back.
Average one-year fixed-rates pay just 0.82 per cent now, down from 1.15 per cent in March.
And there is no suggestion we have even hit the bottom yet when it comes to savings rate cuts, with dozens of banks chopping their interest rates every week.
Rachel Springall, of financial information site Moneyfacts, said: 'The rate cuts and withdrawals may well be set to continue in the months to come, but there are still many savings accounts out there that will be impacted by the eroding effects of inflation today. In fact, some accounts pay as little as 0.01 per cent.
'Inflation is expected to rise in the years to come, indeed by the second quarter of 2021, CPI is predicted to climb to 1.4 per cent and by the first quarter of 2023, it's predicted to be 2 per cent.
'As it stands, savers would need to lock their cash away to beat 1.4 per cent, but 2.0 per cent cannot be beaten by any standard savings account today.'
She added: 'The savings landscape is almost unrecognisable to a year ago.'
For the moment, savers best bet might well be to keep some of their cash either on hand in an easy-access deal or in their bank account.
15 current accounts pay at least 0.5 per cent, up from 12 inflation-matching deals in April.
While Santander's 123 current account will pay just 0.6 per cent on balances from August down from 1 per cent now, Virgin Money pays 2.02 per cent on current account balances of up to £1,000, Nationwide 2 per cent for a year on up to £1,500 on its FlexDirect account, TSB 1.5 per cent on up to £1,500, and Lloyds' Club Lloyds account paying an effective rate of 1.2 per cent on balances of £5,000.
What are the top savings deals?
Best buy savings deals have collapsed during the coronavirus crisis and we're even at a point where the best five year fixed-rate pays under the top 24 month deal.
With Marcus Bank pulling its easy-access deal, it remains to be seen how long NS&I will stick around at the top of the pile - while it also offers the best tax-free easy-access, but his comes in under 1 per cent.
Easy-access: National Savings & Investments 1.15 per cent on £500+
Easy-access cash Isa: NS&I 0.9 per cent on £1+
One-year fix: Al Rayan Bank 1.21 per cent on £1,000+
Two-year fix: Al Rayan Bank 1.41 per cent on £1,000+
Five-year fix: RCI Bank 1.4 per cent on £1,000+
Top fixed Isa: Al Rayan Bank, two-year fixed-rate at 1.4 per cent on £1,000+
https://news.google.com/__i/rss/rd/articles/CBMiYWh0dHBzOi8vd3d3LnRoaXNpc21vbmV5LmNvLnVrL21vbmV5L3NhdmluZy9hcnRpY2xlLTg0MzE2NjEvQmVzdC1zYXZpbmdzLXJhdGVzLWJlYXQtaW5mbGF0aW9uLmh0bWzSAWVodHRwczovL3d3dy50aGlzaXNtb25leS5jby51ay9tb25leS9zYXZpbmcvYXJ0aWNsZS04NDMxNjYxL2FtcC9CZXN0LXNhdmluZ3MtcmF0ZXMtYmVhdC1pbmZsYXRpb24uaHRtbA?oc=5
2020-06-17 14:34:56Z
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