New research from Moneyfacts has painted a bleak picture of the level of returns Brits currently receive from their savings accounts. The study shows that only slightly more than half of all savings accounts in the UK currently offer a rate of return that is above the base rate of 0.5%.
With inflation recently hitting a 30-year high of 5.5%, it means that many savers risk seeing the value of their money eroded. The good news, however, is that there are options for savers to protect their money from inflationary effects. One top option is a stocks and shares ISA. Here’s everything you need to know.
How many savings accounts are beating the base rate?
According to Moneyfacts, there are only 912 savings accounts in the UK that pay interest above the current base rate of 0.5%. That is 55% of the total number of savings products on the market and the lowest count since 2008.
It also represents a significant drop of 12% from just a month ago. This is the largest percentage drop since Moneyfacts began keeping records in 2007.
On the bright side, however, the stats show that the number of savings products in the market has increased. Some 269 new deals have come onto the market in the last year. This brings the total number of savings products on offer to 1,654.
Another piece of good news is that interest rates on various types of savings accounts are rising. The average easy access savings account has seen its rate rise to 0.25% in March from 0.21% in February. Meanwhile, the average easy access cash ISA rate has gone up from 0.26% to 0.30% month-on-month.
What does this mean for savers?
According to Rachel Springall, finance expert at Moneyfacts, there is room for improvement in the savings market because even though interest rates are rising, many savings products continue to offer interest rates below the base rate.
She explains, “Despite encouraging signs of rates rising, there is clearly much more room for improvement for cash savers, but it could take a few months yet before consumers will see a base rate rise passed onto them, and there is no guarantee this will even come to light.”
Recent research from Defaqto appears to back up Springall’s claims. According to their study, only 10% of providers have increased their interest rates by the full 0.25% following the Bank of England’s most recent base rate increase in February.
How can savers protect the value of their money?
Cash savers are almost certain to see the value of their money go down because of high inflation and low interest rates.
The Bank of England is expected to raise the base rate again soon. However, experts warn that this may not be enough to protect savers from the effects of inflation.
For these reasons, it is critical that savers look into other savings options that have the potential to provide returns that can beat inflation.
So what options are actually available?
One that could be worth considering is a stocks and shares ISA. Admittedly, investing in stocks is riskier than putting your cash in a savings account. However, stocks have historically delivered higher returns that beat inflation, particularly over the long term.
Each year, you can invest up to £20,000 in a stocks and shares ISA in different investments, including individual shares, funds, trusts and bonds. The main advantage is that you don’t have to pay tax on any returns from investments held inside your stocks and shares ISA.
What do you need to know before opening a stocks and shares ISA?
Before you invest in a stocks and shares ISA, ensure that you compare different options. This will help increase your chances of finding the ISA that is best suited to your needs. The Motley Fool has created a list of top-rated stocks and shares ISAs in the UK to help you with this.
Naturally, it’s also important to do your own research before you put your money into any stock.
If you do not have the time to research or analyse stocks yourself, consider signing up for a service like The Motley Fool’s Share Advisor. Through this service, you will receive regular expert recommendations and suggestions for some of the most promising opportunities in the market.
Alternatively, you can sign up with a robo-advisor that will create a personalised investment portfolio for you based on your risk preferences.
Don’t leave it until the last minute: get your ISA sorted now!
If you’re looking to invest in shares, ETFs or funds, then opening a Stocks and Shares ISA could be a great choice. Shelter up to £20,000 this tax year from the Taxman, there’s no UK income tax or capital gains to pay any potential profits.
Our Motley Fool experts have reviewed and ranked some of the top Stocks and Shares ISAs available, to help you pick.
Investments involve various risks, and you may get back less than you put in. Tax benefits depend on individual circumstances and tax rules, which could change.
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About the author
Sean is a personal finance writer with a strong passion for helping others become more financially literate and make better financial decisions. He covers everything from credit cards to savings to investing.
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