How can you beat rising inflation by placing your money in a fixed savings account for one year with a return of 6.15% of the principal?
If savers are ready to put their money away for at least a year, they have a chance of outpacing inflation, which is the rate at which prices are increasing over time.
On Tuesday, inflation reached 7.9 percent, which is a decrease and brings welcome news for consumers’ wallets. However, it is still significantly more than the Bank of England’s target of 2%, and throughout the previous 15 months that inflation has been climbing, no savings account has been able to match or beat it. As a result, the value of people’s hard-earned wealth has been eroded.
However, because inflation is currently at a lower level and interest rates are still rising (at least for the time being), wise savers who are able to squirrel away their money may finally be able to beat inflation and grow their funds in terms of their purchasing power.
Despite the fact that no one can currently outpace the rate of inflation, savings rates have been steadily climbing in tandem with the increase in the interest rate. Providers are now offering competitive packages.
Both Tandem and Vanquis Bank are currently offering a one-year fixed rate as low as 6.15 percent; this is the best rate currently available.
If an investor decides to put their money into one of these accounts right now, there is a chance that their savings will have grown more than the rate of inflation by the time they cash out their account, provided that inflation meets the Bank of England’s projection that it will reach 3% by the summer of next year.
According to Anna Bowes of Savings Champion, “Those who have locked up their cash might find themselves in the enviable position of earning more interest than inflation as inflation falls further,” provided the Bank of England is successful in bringing inflation closer to its target of 2%.
Many fixed-rate accounts are now earning more than the current base rate of 5%, and it is expected that these accounts will earn even more if the base rate rises to 5.25%, as is anticipated for the next month.
Bowes cautions customers who wish to take advantage of the best rates that they should take action as soon as possible.
“The market for fixed rates may have already priced in all expected future increases and may have overestimated how high it will go; as a result, we may see top rates falling again in the near future.”
Although there is a possibility, it exists that over the course of the next year, fixed savings rates could end up outpacing inflation.
How much of an advantage would you have against inflation?
For instance, a person who started saving a year ago and placed £1,000 in the best one-year fixed savings account, which offered a rate of 2.4%, would have earned £24 in interest at this point. To compensate for the effects of inflation, however, they would have needed a return of £79 from their investment.
In the meantime, an individual who invests their money in the best one-year fix will earn a rate of 6.15 percent; this would translate to a return of £61.50 on an investment of $1,000 over the course of one year.
In spite of this, the real value after accounting for inflation at a rate of 7.9 percent would be £984, which means that you would still be in the red by £77.50.
If the Bank’s prediction that inflation will be around 3% by the middle of the next year comes true, then an individual who saves money should end up easily beating inflation.
If inflation dropped to 3% the following summer but you opened a bond paying 6.15 percent this summer, then your initial investment of $1,000 would be worth $1,061.50 the following year. Taking inflation into account, the “real-terms” value of the item would remain at £103.1; hence, you would have gained £31.50 in value over the past year when measured in real terms. Naturally, if inflation is higher, your annual earnings will be worth slightly less to you in actual terms.
However, putting money aside in a savings account and trying to game the system both involve some degree of risk and require savers to place a wager on the likelihood of a big decline in inflation and interest rates by the time the goal is reached.
What are the most competitive interest rates for savings accounts?
The best deals for a fixed period of one year
- Tandem Bank: 6.15%
- Vanquis Bank: 6.15%
- 6.10% goes to FirstSave.
- 6.05 percent for OakNorth Bank
- The best deals on fixed rates for two years
- Vanquis Bank: 6.20%
- FirstSave: 6.15%
- Savings at Close Brothers: 6.07%
- Investec Bank plc, with a return of 6.06%
- The best deals are on fixed rates for three years.
- Vanquis Bank: 6.06%
- Investec Bank plc, with a return of 6.06%
- RCI Bank UK: 6.00%
- 5.96% OakNorth Bank OakNorth Bank
- The best deals, are conveniently located
- Chip: 4.51%
- 4.50 percent for the Coventry Building Society
- Oxbury Bank: 4.46%
- 4.45 percent for the Principality Building Society