The rate of inflation rose in June to a 14 month high, leaving savers stranded with no options to providing a ‘real return’.
The latest figures from the Office for National Statistics (ONS) show the Consumer Prices Index (CPI) rose from 2.7% in May to 2.9% in June.
The Retail Prices Index (RPI) also rose by 0.2% to 3.3% in June.
The rises, which were expected after the cost of petrol and clothing rose, would have been even greater, had the cost of airfares and food not fallen.
The rate of inflation remains well above the Bank of England’s 2% target. Although lower than the levels seen in 2011, since the introduction of the Funding for Lending scheme last August, savers have had to contend with falling interest rates on the best buy savings accounts, leaving them with little or no option to get a real return.
Many economists expect inflation to hover around the 3% mark for some month to come, before falling back towards the Bank’s 2% target next year.
How can savers beat inflation?
After the latest inflation figures the answer is simple, not easily!
There are currently no savings accounts, which accept a lump sum, that allow basic and higher rate taxpayers to beat inflation.
There are a couple of options for non-taxpayers, from Bank of London & Middle East and Punjab National Bank who are offering five year fixed rate bonds at 3.10% and 3.00% respectively. Despite the rate being slightly above inflation, many savers will be reluctant to tie money up for five years, fearing they will not benefit from any future increases in interest rates.
Cash ISA investors still only have one option, from First Direct. Their Cash ISA, which pays 2.96% gross, is only suitable for Cash ISA transfers as the minimum deposit is £40,000.