The pace of price increases has slowed, offering a glimmer of hope for consumers, but many savings accounts are still failing to keep pace with inflation. Official figures indicate that the annual rise in the cost of living has decelerated to 2.6% in June, down from 2.8% in May. This marks a significant decrease from the peak of 11.1% experienced in October 2022.
Despite this slowdown, a substantial number of savings accounts continue to offer interest rates below the current inflation rate. According to rate scrutineers Moneyfacts, there are approximately 1,960 savings accounts that now offer rates exceeding inflation, a positive development for savers. However, an estimated 600 accounts remain on the market that pay less than the rate of inflation, meaning the real value of savings in these accounts is declining.
Easy-access accounts remain the most popular choice for savers, holding an estimated £916 billion, compared to £258 billion in fixed-rate bonds. This preference stems from the desire for accessibility to funds amid rising prices.
The average interest rate for a newly opened easy-access account currently stands at 2.55%. At this rate, the interest earned does not offset the rising cost of living, leading to a decrease in the purchasing power of savings. Bank of England data reveals that the average rate across all savings accounts, including older ones, is even lower at just 1.6%.
Savers who remain with traditional high-street banks or hold older accounts may be losing significant value. For instance, a £10,000 deposit in an average-paying account might earn £160 in interest over a year, but to merely maintain the value of the savings against inflation, one would need to earn £260. Accounts like the Halifax Everyday Saver or Instant Saver can yield as little as £75 on a £10,000 balance. Other major banks also offer low returns: Lloyds Easy Saver pays £75 on £10,000, Santander Everyday Account pays £90, NatWest Flexible Saver and Barclays Everyday Saver pay £100, and HSBC Flexible Saver offers £105.
Savers can potentially increase their annual returns by up to £375 by switching to accounts offering more competitive rates. Saga currently offers the highest rate at 4.5%, though it is exclusively available to individuals over 50 and includes a 1.64 percentage point bonus for the first 12 months. After this period, savers would need to re-evaluate their options. Online savings accounts from institutions such as Charter Savings Bank offer 4.21%, while Hampshire Trust Bank (4.18%), Family BS (4.15%), and Hodge Bank (4.01%) also provide rates that exceed inflation without bonus incentives or withdrawal restrictions.