Just one company is offering savings accounts that will completely protect your money from rising prices… But the deal might be gone by 17 May.
Inflation rages on – and on and on – like an animal with large claws and time on its side tearing into a wad of bank notes. These are the very notes you’ve worked so hard to earn and put aside for safe keeping in savings accounts.
Most savings pots get ripped into by rising prices.
Savers can afford less, as time ticks by
Savings accounts usually pay just £1 per year for each £1,000 you set aside.
During this time, prices normally rise. You’ll need perhaps £1,030 to buy all the things you could have bought with £1,000 12 months earlier.
In other words, you’re effectively £29 short.
Some of us try to beat inflation by getting a fixed deal at a high rate. Such savings accounts tie our money up for years. Others guess the other way and keep their money flexible. They accept a lower interest rate now, because they think they’ll get a better deal in the near future.
Unfortunately, guessing right isn’t easy. If you compare the interest you’ve earned over the past ten years to inflation, you’ll probably be disappointed.
Savings problem solved!
Thankfully, some savings accounts guarantee your savings will rise with inflation.
At present, just one company is offering such a guarantee. Birmingham Midshires is part of Lloyds Banking Group. It offers two inflation-matching Individual Savings Accounts (or cash ISAs).
Don’t be scared of the name. A cash ISA is simply a tax-free savings account. The biggest difference between a cash ISA and a normal savings account is you can only add £5,640 per year to a cash ISA. A couple can use two cash ISAs, making it £11,280.
Savings accounts to match inflation
Birmingham Midshires offers two versions of its Inflation Rate ISA. The first locks up your money for five years. It’ll pay interest to match inflation or 4.3% per year, whichever is greater.
That means you’ll get at least £43 per year for each £1,000 you save.
The second ISA locks up your money for three years and matches inflation or pays 3.7%. This means you get at least £37 per £1,000 saved.
In addition, Birmingham Midshires offers both of the same deals in normal savings accounts, i.e. not ISAs. These will still beat inflation if you or your spouse are non-taxpayers. That’s useful if you’re able to lock away more than £11,280.
Inflation is measured using the Office of National Statistics’ Retail Prices Index, which is the most comprehensive measure of inflation.
This is no emergency savings account
If you need to access the money early you’re charged £50 for each £1,000 you withdraw. You’d be pretty miffed if you lost a £50 note, even if you have £10,000 stashed somewhere. This is no different.
If you want to opt for this account, be sure you can tie your money up for three or five years.
Time might be short to get this savings account
The start date of this account is 17 May, so there might just be two weeks left to apply. Birmingham Midshires could extend the deal, but we won’t know until then.
If you want to beat inflation
Matching inflation is an excellent result for taking no big risks with your money. If you want to try to beat inflation, consider investing instead of saving.
Disclaimer: Where we compare financial products offered by different financial services providers or make a recommendation in relation to a particular product or provider, we do so as the providers of an information service, and this is not intended to constitute a recommendation, invitation or inducement to any particular individual to make any specific investment.
