Money News

Inflation could be savers’ best friend

Rising inflation may force the Bank of England to increase the base rate, which will be good news for savers.

Savers have seen interest rates plummet in 2009, and rising inflation threatens to further shrink savings in real terms.

However, Michelle Slade, analyst at financial information company Moneyfacts (www.moneyfacts.co.uk), believes inflation could have a positive effect on savings rates.

She said: “Savers’ best friend next year may well be inflation, which if it continues to increase, may cause the Monetary Policy Committee to increase the base rate sooner rather than later.”

The average rates on easy access savings accounts, notice accounts, ISAs and one-year savings bonds have all fallen by more than 0.5% since the beginning of the year, according to Moneyfacts.

Slade said: “Savers have had a dismal year as rates have fallen to record lows. Those that rely on income from their savings have been the hardest hit, with many having to make changes to their lifestyle as a result.”

Chris Eagle, commercial manager at Creditchoices.co.uk, said: “Right now, the main priority for savers is to beat inflation.

“To do this you need to secure a rate of at least 2.38% if you’re a basic-rate taxpayer and 3.17% if you’re a higher-rate taxpayer.

“If your savings account can’t beat this, it’s time to compare savings deals and switch now.”