Wednesday, 16 November 2011

Silver lining for savers

Today's grim news about the economy from the Bank of England has a silver lining for savers.

Cash in savings accounts has been shrinking in value, because virtually all interest rates are less than the rate of inflation.

But the Bank's Inflation Report suggests that Consumer Price Inflation (CPI), currently 5%, will drop to 2% and below in the second half of next year and to 1.3% in early 2013.

For savers, this means light at the end of a very dark tunnel.

Take two top-of-the-table accounts on Moneyfacts today, accounts which aren't distorted by bonus payments which get removed after a year.

West Brom Building Society has an internet account paying 2.8%, a money-shrinker at the moment. But potentially a money-grower if inflation does fall sharply next year.

Even with 20% tax taken off, the rate equates to 2.24%.

And you can get a similar return, tax-free, from Northern Rock's E-ISA.

For those prepared to lock their money away for 3 years, much higher rates are available: 4.3% from Yorkshire Bank, for instance, and 4.15% from the AA.

Don't expect fireworks from interest rates. Most pundits think the Bank of England's base rate will stay at 0.5% until 2013 and possibly beyond.

But at least the pain for savers could start to ease.

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