Savers should consider a long-term bond to beat future inflation rises

Consumers should be aware that although inflation has dropped to 1.5% today, savers wanting long-term inflation-beating rates should consider locking into a long-term deal now or may find their money eroding over the next few years.

The Bank of England’s official forecast predicts that inflation will hit 2.2% in the last few months of 2022, but due to fixed bonds rates falling over the last 12 months, there is now currently only one three-year bond that can beat this rate. As a result, savers aiming to beat potential rises in inflation should instead look to towards long-term fixed rate bonds to ensure that their money does not lose value over the next three years.

Research carried out by Moneyfactscompare.co.uk shows that with today’s statistics revealing that CPI fell to 1.5% during October, there are now 199 fixed rate bonds, 50 fixed rate ISAs and 18 notice accounts (based on £10,000 deposit) that can now match or beat inflation. Within that, 168 fixed bonds, 40 fixed ISAs, and 16 notice accounts pay more than 1.5%.*

Rachel Springall, finance expert at Moneyfactscompare.co.uk, said: “Due to the cost of various goods falling, households may not have the attitude to save right now, particularly in the run-up to the festive period, but this could be a dangerous view. If consumers come up against financial constraints in the coming months without any substantial savings to fall back on, it may be a struggle to pay for the everyday essentials. Savers may not be able to beat inflation with an easy access account today, but they can get access to their money quickly, so interest may not be the magnet for some.

“Despite the forecasts that inflation will remain below target this time next year, if it were to hit or indeed breach the 2% target, savers would need to lock into a fixed rate bond to beat it. Sadly for savers, fixed returns are plummeting, and this month is the first time in 18 months that the top rate offered on a one-year fixed bond has fallen below 2%.

“However, the forecast also estimates a breach in 2022, in which CPI will hit 2.2% in Q4. Our data shows that only one three-year fixed bond can beat 2.20%, as an expected profit rate from Al Rayan Bank. As fixed bonds continue to plummet, there is no telling how long this bond will remain on offer.

“Speed remains the key to securing a top interest return and not just on fixed rates. As providers can act quickly to cope with both their market exposure and demand, lucrative rates may not sit on the shelf for long and savers easily could miss out.”

*Data note: Please note that these savings product numbers only include deals that are available to all UK residents (no notice, notice, fixed rate bonds, variable or fixed ISAs) and excludes regular savers and children’s savers (this figure does not count each interest payment option for each account), based on a £10,000 deposit. Higher rates may be available for larger deposits.