Don't let savings languish in a sub standard account

Andrew Hagger of Moneynet.co.uk looks at the rates offered to savers in light of the latest inflation statistics.

With CPI now back up to 1.5%, a basic rate taxpayer will need to secure at rate of at least 1.875% gross to maintain the spending power of their savings pot.

A moneynet.co.uk review of all savings accounts on offer (apart from ISAs and Fixed Rate Bonds), reveals that over 78% of variable rate accounts are paying a rate of 1.875% or less. Not surprisingly the situation is even worse for higher rate taxpayers with over 90% of accounts paying less than the 2.5% gross rate required.

With inflation rising sharply, savers need to check their rate to ensure they're not losing out - anything less than 1.875% for a basic rate taxpayer and the value of their cash is being eroded. (For a high rate taxpayer you need a gross rate of at least 2.50%).

The message is clear, don't let your savings languish in a sub standard account, you may have to move your emergency or rainy day fund to an account offering a 12 month bonus and then switch away when the bonus falls away. For example Citibank is paying 3.25% gross on its instant access flexible saver, but this includes a bonus element of 2.25% for the first 12 months only.

To get a real return on the bulk of your savings it's important to make full use of your ISA allowance and then take advantage of the better rates on offer in the fixed rate bond market.

If you fix at the moment you can get 3.95% for one year from NS&I, 4.35% from AA for two years, right through to 5.35% from Skipton Building Society if you're happy to commit your cash for a five year term.