Savings rates - can they beat inflation?

Marcus Neville
Posted by Marcus Neville
Posted on July 15, 2021 Leave a comment

As we move into the latest stage of the UK government plans to bring the population, society and economy back to some normality, it may seem that we are leaps ahead of the rest of the world and where they stand in the current (and still ongoing) crisis. However, this is far from the truth from an economic standpoint, particularly for savvy savers.

Since National Savings & Investments (NS&I) announced cuts to their interest rates in September 2020, we have kept a close eye (and wrote extensively) on the rollercoaster ride that is savings rates. Plummeting and rising, only to drop again (from 1.31% last year for those who wanted to fix their money for one year to April 2021, where the rate fell below 0.60%), savers have barely had much stability around the opportunities available to them to save cash and earn reasonable interest on it. 

Despite these ups and downs, the UK has seen record numbers of people saving money for either a rainy day or to save to buy a house (with the many initiatives put in place to incentivise buying property for first-time buyers). The Guardian recently reported that British households built up their savings to the second-highest level on record at the start of this year. The savings ratio rose to 19.9% from 16.1% in the three months to the end of December 2020. The previous record of 25.9% took place in the second quarter of 2020 during the first lockdown.

Now, as the UK opens back up, people have returned to the office (you can see Bloomberg’s brilliant virtual data mapping on what they call the Pret Index, showcasing the gradual return to moving freely around major cities). On the other hand, many have gone out to spend their savings having cited their joy of having experiences again outside of their home worth the cost

So, why are these factors important to our title question? To take us back to our talking point - can savings rates beat inflation - we will start with what we mean by this, and is there a clear-cut answer - the answer is most likely not.

First, let’s take a step back. What causes inflation? The rate of inflation is the change in prices for goods and services over time. Measures of inflation and prices include consumer price inflation, producer price inflation and the House Price Index. To cover costs, and meet demand on certain goods, you may have noticed an increase in prices, coupled with Brexit and what that means for trading, scarcity of products equals an increase to the costs of certain products.

The Office for National Statistics (ONS) states that the inflation rates we are experiencing now are directly impacted by the first lockdown in Spring 2020. It states in its May 2021 bulletin that the Consumer Prices Index rose by 2.1% in the 12 months up to May 2021, which is up 1.6% to April.

To support households during the pandemic, the Bank of England (BoE) base rate continues to stay at 0.1% (the last time it changed was in March 2020). This is important to note, as the base rate is what the BoE charges other banks and lenders when they borrow money, so it has a direct impact on the interest rates available on the high street.

If we take a look at market rates, currently the highest rate you can get for your savings for a one year fixed rate is 1.1%, with the next best available rate at 1.01 AER (this is of course, at the time of writing this article with the information coming directly from Which Money in July 2021). As of today (13th July 2021), RBS is currently offering customers a 3.04% interest rate on balances of up to £1,000. This is the highest in the market for the past 18 months and has been set exclusively for RBS customers to encourage better saving habits. However, customers will only receive a further 0.01% interest rate on any savings after the £1,000 threshold.

So should we expect things to change soon? Each month the Monetary Policy Committee (MPC) decides whether interest rates need to change. The MPC wants to meet the government's target to keep inflation below 2%, yet in May of this year, inflation increased to 2.1% - slightly over. There was even speculation that we could be heading for a rise in the base rate to combat increasing inflation, however, the MPC has stated that the base rate should remain the same until the economic outlook was more certain. 

According to some, economists are predicting that if the UK continues on this trajectory, that inflation may exceed 3% later this year. The BoE forecasts it is more likely to be 2.5%.

In conclusion, do we see savings rates beating inflation? 

It seems unlikely that savings rates will beat inflation as we enter the second half of the year, however as we can see with RBS, fast-acting customers can benefit from spontaneous offers that can give them a savings head-start. As the world opens up, banks and lenders can see that savings may very well decrease, and by giving out interest rates that go above and beyond what is currently on offer, can give themselves a competitive edge. Consumers will have to act quickly and think smart if they want to make the most of their money, if inflation increases to 3% by the end of the year (merely a prediction, nothing is set in stone yet), it will be interesting to see how quickly the BoE, the MPC and banks and lenders act in response to keep customers interested in saving their cash on these platforms.

So, why should you choose Akoni to help you with your client’s cash decisions?

1) Safe and secure with the FSCS Government deposit guarantee

All deposits are held with each bank providing protection of up to £85,000 per bank, or up to £1 million for Temporary High balances.

2) Diversifying risk (spreading money across savings providers)

With the option to spread cash across several providers on the Akoni Cash Management Platform, you can diversify risk, and increase the chances of positive returns.

3) Increased returns & Better interest rates

In a climate of economic uncertainty, and with interest rates being cut across many providers, it’s not easy to find decent interest rates in a simple way. With Akoni, you can find competitive interest rates to suit your client’s specific needs.

4) Quicker, and hassle-free - no form filling

Akoni Hub provides a hassle-free cash management experience - your clients can onboard and open an account online with no fuss. Clients will only need to complete one AML/KYC process, can switch between providers, and manage their account on the Akoni Cash Management Platform in just a few clicks.

5) White label Adviser portal and tools

You have the flexibility to create a platform that works for you and your clients. Add your branding to showcase who you are through a sleek, professional cash management platform designed with you in mind.

The award-winning Akoni Cash Management Platform is already leading the way in the wealth management sector, and has partnerships with Barclays, Aldermore, Investec, Clydesdale, amongst others. The ability to white label the platform gives financial advisors flexibility to help their clients move cash depending on ever-changing macro and micro environmental factors.

Find out more about Akoni: Akoni is an award-winning UK cash platform, which provides a marketplace to financial advisors and wealth managers through a bespoke white-label offering, or off-the-shelf offering. Akoni uses innovative technology to personalise cash planning solutions for clients, and also provides a full API solution to banks and insurance clients.

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