Beating inflation: uphill battle for savers to get a return

Just one in five loveMONEY savers is able to keep pace with inflation – and it's not hard to see why when you look at the best buy tables.

A lot of the attention at the moment is going towards those individuals and families who are worried about making ends meet, and rightly so. 

Even with the extension of the furlough scheme until October, and the (eventual) launch of the Self Employment Income Support Scheme, there are nonetheless millions of people across the country in a difficult situation, with yet more uncertainty ahead. 

But there are also millions of households who have squirrelled money away over the years to build some savings, who don’t know whether to laugh or cry at the ‘returns’ currently on offer.

Savings made simple: best savings platforms compared

Unbeatable inflation

Since the start of the year, loveMONEY has polled you, the readers, a handful of times on whether your savings are currently beating inflation.

Really, this should be the minimum expectation for any engaged saver. If you aren’t beating inflation, then the value of the money that you have saved is essentially being eroded over time.

And yet less than one in five readers believes their savings are beating inflation.

Given the Consumer Prices Index measurement of inflation right now is sat at just 1.5%, you wouldn’t think it would be out of the question for most savers to find somewhere to keep their money that pays an inflation-beating rate.

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A needle in a haystack

There are thousands of different savings accounts for people to choose from. 

The trouble is that many of them are absolutely rubbish. According to data from financial information site Moneyfacts, when the latest inflation figures were announced back on 25 April, only a laughable 65 accounts offered a return that beat it.

Compare that to a month beforehand, when the 1.9% figure of inflation was beaten by 165 accounts.

That’s still not exactly brilliant when you consider just how many accounts are available, but it’s a darn sight better than the current slim pickings.

Little wonder then that so many savers don’t believe their money is getting much back, even if they have managed to dodge one of the raft of accounts now paying just 0.01%. 

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The best of a bad bunch

So what accounts are beating inflation at the moment? You should definitely keep an eye on the best buy tables at the likes of Compare The Market and MoneySupermarket (our savings best buys are currently being revamped).

Current accounts have been a useful alternative to savings accounts in the past for small savers, with rates of up to 5% on offer. The rates on offer from these accounts have been slashed of late though, to the point that only Nationwide’s FlexDirect account pays 2% and is worth considering.

There are no instant access accounts paying a rate higher than inflation, while on notice accounts you can get 1.6% with ICICI Bank but you’ll have to give 95 days notice in order to make a withdrawal.

If you lock your cash up for a while, you’re more likely to get an inflation-beating return too.

An 18-month bond from Bank of London and the Middle East (BLME) for example pays 1.65% on balances above £1,000, while the same bank is the best bet over two years, paying 1.70%. 

Over three years, you can get 1.75% from the likes of Gatehouse Bank, while locking your money up for a full five years can get you a rate of 1.85% from either Gatehouse or BLME.

Those rates are not exactly something to write home about, but they at least mean your money is gaining in value over time. What’s more, with the Bank of England forecasting inflation to drop below 1% in the months to come, those returns may look more impressive later on.

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Alternative options

If you want to get a better return from your money, then you need to accept a higher level of risk. 

Over the long term, investing in the stock market tends to deliver a better return than saving in cash, but with the warning that things can go down as well as up.

And lordy, the last few months have shown just how dramatically things can go down ‒ I wince every time I look at my pension statement, and not just for the usual reason that I’m not saving enough.

Now, if you’re feeling particularly brave then this could be a fantastic time to invest, since certain stocks are going to be pretty underpriced.

Unfortunately, there will also be some firms that are going to get into serious bother in the months to come, potentially even hitting the wall. 

It all comes down to your confidence as a stock picker really.

Similarly, alternative investments like peer-to-peer lending may have looked more enticing during normal times but may be less appealing in the current circumstances.

Ultimately it comes down to individual investors and how confident they are in their own investing tactics. But if it pays off, it will certainly mean a more impressive return than most people get from their savings deals at the moment.

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