Over 600 cash deals now beat inflation – but is this a false dawn for savers?

20 May 2020

UK inflation falls to four-year low


More than 600 savings deals now beat inflation, now 0.8%, but experts say savers should not be optimistic about this lasting.

The latest figures from the Office for National Statistics (ONS) show the Consumer Price Index (CPI) measure of inflation was 0.8% in April, down from 1.5% in March.

Currently, 654 savings accounts match or beat inflation. This includes 32 easy access accounts, 61 notice accounts and 96 fixed rate Isas, according to the latest data from Savings Champion.

This outpaces 613 accounts which do not beat April's rate of inflation. 

Is this good news for savers?

Lower CPI is good news for savers, as it means they have a higher chance of picking a deal with an interest rate that beats inflation.

This matters because inflation is the increase in the cost of goods and services, so cash held in below-inflation deals effectively loses spending power over time.

But while today's news may appear to be good news for savers, the inflation drop may only provide a temporary boost for their cash. 

The 0.8% inflation figure is artificially low as a result of reduced consumer spending due to the coronavirus outbreak. When the pandemic subsides, chances are inflation will rise again.

Kevin Brown, savings specialist at Scottish Friendly, says:"The low inflation figures are a false signal for savers.

"It will mean more people now have inflation-beating rates of return on their savings, however treating this situation as the new normal is not the best course of action as it may only be temporary.

"The crisis will pass and the economy will open back up. This could quite conceivably lead to a spike in inflation as many households with pent up cash are unleashed on the high street.” 

Why did inflation fall?

A drop in petrol and diesel prices, along with lower energy bills were the main causes of the decrease in CPI inflation.

Average petrol prices fell by 10.4p per litre between March and April 2020, which is the largest monthly fall since 1990.

Similarly, the cost of energy for a typical standard variable tariff is predicted to fall by 1% this year as a result of the wholesale cost of energy falling.

Jonathan Athow, deputy national statistician at the ONS, says: “Falling petrol and diesel prices, combined with changes to the domestic energy price cap were the main reasons for lower inflation in April.”

Which prices went up?

The cost of goods such as video games, consoles, board games and toys rose over this period, which the ONS attributes to people spending more time at home due to the coronavirus lockdown.

Despite the overall cost of food falling 0.1%, the price of fresh vegetables including potatoes, carrots and onions rose from March to April as well.

Which are the best inflation-busting deals?

The best easy access savings deal is NS&I Income Bonds, which pays 1.16%. 

This is followed closely by Family Building Society Market Saving Tracker which offers 1.13%.

The number of savings deals has dwindled steadily since the beginning of March this year.

Savers are being advised to regularly check best buy tables and snap up good savings deals before they disappear. 

Anna Bowes, co-founder of Savings Champion says: "As expected with such a big drop in inflation, even though savings rates are being cut, there are still many more accounts that match or beat inflation at the moment.

"However, this situation could change going forward, so it’s really important to make sure that your cash is in the best paying accounts that you can find to mitigate the effects of inflation as much as possible."

For more information about the best offers check out our guide on the best savings deals this week.

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