New inflation rise makes cash savings “impossible”
Inflation rose to a 30-year high of 6.2 per cent in February, sparking concerns that savers will be left out of pocket amid an ongoing cost of living crisis.
Economists had previously forecast an inflation rate of 5.9 per cent for the past month, but rising energy and petrol costs tipped the consumer price index even higher.
Last week the Bank of England warned that inflation is likely to hit eight per cent by April with the possibility of a double-digit increase in the autumn, if energy prices continue to rise.
One year ago, the rate of inflation was just 0.4 per cent.
According to Moneyfacts data, the highest-paying cash ISA account is currently offering just 1.6 per cent in annual interest. This means that any money saved in these accounts would be losing 4.6 per cent of its value in real terms due to rising inflation.
One finance expert at Moneyfacts said it was “an impossible task for cash savers to protect their cash from its eroding impact”.
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“Rising inflation is taking its toll and not one standard savings account can beat it today,” said Moneyfact’s Rachel Springall.
“The Bank of England predicts inflation will be beyond the two per cent target for some time yet, but even if inflation fell to two per cent, there are few options for savers to choose from to outpace this rate.”
Springall added that with some cash ISA providers offering rates as low as 0.01 per cent, “it would be sensible for savers to ditch and switch”.
Recent research by Peer2Peer Finance News found that Innovative Finance ISAs (IFISAs) have outperformed the UK stock market over the four years from 2018 to 2021, with relatively stable returns of between eight to nine per cent per annum. Across the same period of time, Cash ISA returns remained below two per cent per annum.
Read more: IFISAs: The golden ticket