Good news for savers - at last

published 31 October 2005

Things are looking up on the savings front, says Helen Monks in The Observer. The Bank of England may not have raised the base rate this month, but in anticipation of future rises, the banks are preparing to do battle. Halifax has just launched an account that pays "an inflation-busting" 6.05% gross for those who can save between £25 and £250 a month for the next year. And this can only be good news, says Faith Dewey in The Daily Telegraph, given that three in four deposit accounts currently fail to pay basic-rate taxpayers a "real return" (ie enough interest to preserve the purchasing power of their capital against inflation). Indeed, according to the survey of 741 accounts by Bates Investment Services, only 50% pay enough interest to keep non-taxpayers' savings growing faster than inflation, while only five of them preserve the value of higher-rate taxpayers' spending power. Of these five, three were from Northern Rock, which pays 4.35% on all three; one was from Chelsea Building Society's 60-day notice account, the PostSaver 60, which pays 4.5% gross (this includes a 0.5% bonus for the first year); and the fifth was from ING Direct, which pays out 4.41%.

However, before you move, ask yourself if you are prepared to switch accounts regularly to keep up with the best rates, says Clare Francis in The Sunday Times. Since more than half of the top-paying instant access accounts stayed in the best-buy tables for only two months over the past six years, you may well be better off with a consistent payer. The most consistent over the past three years are Halifax's WebSaver, which currently pays 4.05%; Egg's internet account, which pays 4% and is guaranteed to track the base rate until December 2007; and Nationwide's E-Savings, at 4%.

But while you may be able to beat inflation by doing your homework on the best rates, the danger is that this is about to change, says Liz Dolan in The Sunday Telegraph. For the moment, the RPIX (the retail price index minus house prices and council tax) is "seemingly holding steady" somewhere between 2% and 3%. - but how long will this last? Not for much longer, says Bill Jamieson in The Scotsman. Raw materials and key metals such as copper and platinum have already seen a boom in prices. The relentless rise in government spending across Europe and America is increasing inflationary pressure, while a potential fall in sterling would drive up prices of imported goods and raw materials. One way to preserve spending power in such an environment is to buy inflation-linked bonds. Their rates look lower than the best savings offers on the market but the additional security they offer still makes them worthwhile, says Dolan. National Savings & Investments' three-year certificate (issue 5) pays 0.56% on top of inflation (2.6%) tax-free, the equivalent of 4.44% to a basic-rate taxpayer and 5.92% to a 40% payer, while the five-year certificate (issue 32) pays 1.1% above inflation, currently worth 4.63% and 6.17% respectively. NS&I savings certificates are available from Post Office branches (0845-964 5000, or at the website, https://www.nsandi.com/).