The average interest rate on instant access deposit accounts has risen above a psychological barrier, but savers shouldn’t get too excited, they won’t exactly be jumping for joy!
According to the financial information service Moneyfacts, the average interest rate on instant access deposit accounts has now risen to 1.01%.
Most savers won’t see that as a cause for jubilation, in fact the reaction could well be a resigned sigh and roll of the eyes.
Savings rates to beat inflation
The average rate of 1.01% is the highest for level for three years and compares favourably to this time last year when the figure stood at just 0.72%, lower than in 2010 when the average rate was 0.84%.
However savers won’t be jumping for joy just yet, the average rate of 1.01% is still pathetically low and well below inflation. The Consumer Prices Index was 3.4% in February, meaning that a basic rate tax payer would need a gross interest rate of 4.25% to keep pace with inflation, the average interest rate on instant access accounts is clearly well below this ‘breakeven’ point.
To beat inflation a basic rate tax payer would currently need to tie up their savings for four or five years. Accounts which beat inflation can be found on our ‘Inflation Watch’ feature, click here to go there now.
Best instant access savings rates
Barclays were recently named as Britain’s worst savings bank with seven out of 10 accounts paying less than 0.5%, even worse though 60% of the accounts offered by Barclays pay less than 0.1%.
However relief can be found if savers shop around and look hard for the best savings interest rates.
Although the average interest rate for instant access accounts is only 1.01% it is possible to get interest rates significantly higher than this, especially if you are prepared to use an account which pays a temporary bonus rate.
The Nottingham Building Society’s eSaver Plus pays 3.20% gross AER and the Coventry Building Society’s Online Saver pays 3.15% gross AER, although this account only allows four penalty free withdrawals each year.
Both of these accounts come with initial bonus interest rates and financial experts recommend that savers who open such accounts consider moving their money when the bonus rate comes to an end as the removal of the bonus often makes the account uncompetitive.