Inflation comes down- ISA it better news for savers?

coinsSo the price of things has come down. Well, not down exactly but less up than they were before. That’s a good thing, right?

The lastest figures show the consumer prices index (CPI) has come down to a far more agreeable 3.6%, although it is still far higher than the Government’s long term 2%pa  target. This means that, overall, prices have come down compared with last month, but are still 3.6% higher than they were a year ago.

One group who will be particularly interested in this development are the smug people who actually have ‘savings’. None of the Bitterwallet staff have ever heard of such a thing, but we understand it means that some people have money left over and they need a receptacle in which to invest this spare cash. Some people stick it in a mattress, although a recent Evening Standard experiment proved that you are actually better off getting your cat to invest the cash rather than leaving it nestled between the springs, but a good many would like it to sit quietly in a bank account, preferably earning some interest while it was doing nothing else.

However, in recent times, the gross rate of interest on savings accounts has struggled to beat inflation, let alone after the effects of 20% or 40% tax have kicked in. This means that, in real terms (ie what you can actually buy with your cash) your money is worth less when you take it out of the bank than when you put it in. This is decidedly Not A Good Thing, and is why the recent index-linked National Savings certificates issue was more popular than our own Andy Dawson at a Little Mix signing.

But now that inflation has come down, it means that there is a glimmer of hope on the horizon for savers. The Daily Telegraph and Moneyfacts have identified 31 savings products whose interest rates will now beat the inflationary return rate for a basic rate taxpayer. Five of these are long term bond accounts and the other 26 are fixed rate (and length) ISA accounts. Which is kind of cheating a bit because they don’t have to worry about the 20% tax.

Still, as things stand, there is no instant access savings account or ISA that gives an inflation beating return. Sorry.

However, given that we are now hurtling towards the end of February (and if anyone wants to send me a birthday card for next week, please do), anyone thinking of investing money in a cash ISA may well be advised to hold fire for a couple of weeks or so. The deadline for this tax year’s investment in a cash ISA (currently up to a maximum of £5,340) is 5 April, and in the last month before the cut off, savvy savers can often find banks and building societies increasing their offerings in order to secure your investment.

If you invested in an ISA last year, or in another type of savings account, around this time, it may also be a good idea to check whether any promotional rate is expiring. Cash ISAs are notorious for dropping rates for existing accounts dramatically after the promotional period ends, and the same applies to some savings accounts. The measly fraction of a percentage rate you will get after the deal ends will certainly not beat inflation, and is probably going to give the mattress a run for its money in terms of actual return. Loyalty pays nothing in this game, so check out the competition and move your money. Or don’t come crying to us.


  • Goatse M.
    £5340, no?
  • Boris
    Is there prize of best birthday card for Sam?
  • Martin L.
    There's some rather iffy advice in this article. You would be better off reading the guides at my Money Saving Expert website for some meaningful information on this subject.

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