Inflation: ‘”Two out of three ain’t bad”, welcome news for savers as inflation falls to new low


Inflation: ‘”Two out of three ain’t bad”, welcome news for savers as inflation falls to new lowIt’s not often you get to quote Meatloaf in an article about inflation and savings but today we’ll make an exception.

Over the past few years savers have been hit hard from three sides:

1. High inflation, which was eroding the value of capital, with interest rates higher than the rate of price increase

2. Low interest rates, pushed down by the Bank of England and Government initiatives such as the Funding for Lending scheme

3. ISA discrimination, which meant Cash ISA savers could only use 50% of the annual ISA allowance

It now looks as if two of these problems have been sorted, and as Meatloaf said ‘Bat out of Hell’, “Two out of three ain’t bad!”

Inflation Watch

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Rate of inflation falls

The rate of inflation, as measured by the Consumer Prices Index (CPI), fell last month from 1.7% in February to 1.6% in March. The Retail Prices Index (RPI) which takes into account certain housing costs, also feel from 2.7% to 2.5%.

The figures from the Office for National Statistics (ONS) confirm the downward trend in the rate of price increases, taking the rate of inflation to the lowest level since October 2009.

The main factor behind the falls was petrol, which remained static last month; against large rises this time last year.

“Two out of three ain’t bad”

Beleaguered savers, previously hit from three sides, now have some good news.

Firstly, in March the Chancellor announced a boost for savers in his Budget, with the news that it will soon be possible to put up to £15,000 each year into a Cash ISA; as well as transfer in money from a Stocks & Shares ISA.

Secondly, as the rate of inflation falls, even savers who pay 20% or 40% tax can now get a real return on their capital.

Our ‘Inflation Watch’ feature, shows exactly which accounts pay enough interest to generate a real return, but for the first time in months, almost every saver has an option to beat inflation. Although, in many cases, this will involve tying money up for a prolonged period, which might not be attractive to everyone.

The third problem though, low interest rates, looks as though it will be harder to shift, with many financial experts predicting it will be months, perhaps even years, before rates start to rise.

Even so, compared though to just a few months ago, savers should now find it easier to get a real return on their capital and as Meatloaf said, “two out of three ain’t bad!”