Inflation hits its 2% target. Are we finally seeing a light at the end of the tunnel for savers?

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Finally after four long years of above target inflation, CPI inflation is down to the Bank of England target of 2%. It hit a high in September 2011 of 5.20%, its highest in over 10 years.

The outlook for savers is a lot brighter with more and more accounts now making a real return after tax and inflation.  Looking back to July last year, not one single account beat inflation for both basic rate and higher rate taxpayers. The tide has certainly turned with almost a hundred accounts now matching or beating basic rate tax and inflation and even 60 matching or beating higher rate tax and inflation.

Savers have been hammered by four years of above target inflation and over four years of low interest rates. Those people, such as pensioners, who rely on their income from savings, will have felt the squeeze the most from this combination. If interest rates rise, they will hopefully have more choice in picking a decent savings account, which may mean that they’ll be able to switch the heating back on. Are we finally seeing a light at the end of the tunnel?


Bank of England Base Rate: 0.50%

Inflation figures: CPI – 2%, RPIJ  – 2%, RPI – 2.70%

Rate needed to match or beat CPI inflation = Basic rate tax – 2.50% / Higher rate tax – 3.33%

Number of accounts that match or beat inflation:

• Easy Access – 0
• Notice – 0
• Fixed Rate Bonds – 7 YR – 2, 5 YR – 22, 4 YR – 6, 3 YR – 10, 2 YR – 1, 12-18 mths – 1,
• Cash ISAs (total)  – 57

Higher Rate Taxpayers = 3 (2X 7 YR FIXED RATE BONDS, 1x 5 YR FIXED RATE BOND)

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  • george

    I am confused. Surely a fall in inflation signals no need to raise interest rates. Perhaps I am missing something here?
    There are no easy access accounts offering inflation beating returns.