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Savers losing 2% a year to rising prices even if the cash is sitting in the best easy-access Isa

By Sylvia Morris For The Daily Mail

Published: 17:00 EDT, 19 September 2017 | Updated: 04:37 EDT, 20 September 2017



Savers are having their nest-eggs savaged by the soaring rate of inflation.

Even if your cash is sitting in the best easy-access Isa, it is depreciating by nearly two per cent a year, Money Mail research shows.

The top easy-access cash Isa, Virgin Money Defined Access Isa, pays 1.06 per cent.

But inflation rose to 2.9 per cent in August, pushed up from 2.6 per cent the previous month by higher fuel costs and the price of clothes. 

So savers are seeing their money eaten away at a huge rate of 1.84 per cent a year (1.06 per cent less 2.9 per cent).

The effect is to turn each £10,000 into £9,981.60 over 12 months even after interest has been added.

On easy-access savings, the top rate is 1.25 per cent from Ulster Bank. That means your money is devaluing at a rate of 1.65 per cent.





In the High Street, it is even worse. The top easy-access account with no restrictions on how many times you make a withdrawal is one per cent from Kent Reliance — leaving you a higher 1.9 per cent out of pocket.

A year ago, you might not have earned much interest on your savings, but at least the value of your money would not have been eaten away by rising prices.

Today, there is not one savings account that can match or beat inflation, according to research by data analysts Moneyfacts.

The best one-year fixed deal pays a below-inflation 1.83 per cent from Wyelands Bank. The top two-year bond is 2.05 per cent from Paragon and Atom banks.

And, again, if you stick to the High Street fixed-rate bonds, they are even worse value.

The top one-year deal is 1.5 per cent from Metro Bank or 1.3 per cent from Virgin Money. Big players pay even less. Halifax pays a paltry 0.45 per cent fixed for one year and Lloyds just 0.35 per cent.

Even if you tie your money up for five years — which experts warn against — the best deal is a below-inflation 2.4 per cent from Close Brothers Savings.

This time last year, inflation was running at a much lower 0.6 per cent.

Then you could earn 1.2 per cent in an easy-access account, double the rise in the cost of living.

On fixed-rate bonds, the rate was as high at two per cent for one year and 2.2 per cent for two years, giving you a real return of 1.4 per cent or 1.6 per cent even after inflation was taken into account.

The sudden turnaround followed the cut in base rate to 0.25 per cent in August last year, where it has been frozen ever since.

Providers cut their rates against a background of rising prices on goods and services.

Savers' rates have edged up recently from their lows following the cut in base rate, but not nearly enough to help savers keep their money growing at the same pace as the cost of living.

Experts now predict inflation will rocket to more than 3 per cent before starting to fall. It is putting pressure on the Bank of England to raise interest rates.

But the Bank's governor, Mark Carney, says the hikes must be gradual to protect mortgage borrowers from defaulting.

The only way savers can beat the new 2.9 per cent inflation rate is by using a current account that pays interest. But the amount you can protect is very limited.

Nationwide FlexDirect pays five per cent on the first £2,500 in your account, but only for the first year.

Tesco Current Account pays three per cent on up to £3,000, while TSB Classic Plus gives three per cent on a maximum £1,500.



There are a handful of bank accounts on the market that pay you to switch or offer inflation-beating interest rates which outstrip any savings account.

We round up some of the best deals on offer below:

The best interest-paying accounts

As mentioned above there are a few other accounts on the market which may prove a more lucrative home for your cash.

We have compiled a table to help you compare the top deals below.

You can also read more about our top picks in This is Money's regularly updated guide to interest-paying current accounts.

What about free money and incentives?

First Direct pays £100 to new customers who switch to its First Account. The account comes with a £250 fee-free overdraft buffer and access to its popular Regular Saver, paying 5 per cent on up to £3,600 per year (£300 per month).



Savers losing 2% a year to rising prices
