Only 1 Savings Account out of 800 Beats 2.3% Inflation

Inflation hit 2.3% last month, surpassing the central bank's 2% target for the first time in more than three years. Now, only one saving account can match CPI

Karen Kwok 21 March, 2017 | 2:26PM
Facebook Twitter LinkedIn

Inflation accelerated to 2.3% in February, from 1.8% the previous month, surpassing the Bank of England’s 2% target for the first time in more than three years. This means that only one savings account can better the latest inflation level, data provided by and shows.

Of the 793 savings accounts currently on the market, just one five-year fixed rate cash bond from Milestone Savings can meet the 2.3% inflation level. This product requires a minimum deposit of £10,000 and there is no access allowed within the five-year fixed term.

Weak Sterling Pushes Inflation Higher

Rising fuel and food prices contributed to the rise of inflation in February, the Office of National Statistics said.

Fuel prices increased by 1.2% between January and February 2017, partly lifted by the depreciation of sterling against the US dollar, the report added. The rise of food prices is due to consistent reports of “poor growing conditions for certain vegetables in southern Europe affecting availability”, said the ONS.

“The question now is whether this data will prompt a move from the Bank of England on interest rates. The 8-1 vote last week not to raise rates show that it is clearly of view this is a transitory spike caused by the weak pound and the increase in the oil price.  However, if oil stays where it is at $51 then oil will be flat year on year by the fourth quarter of the year and the effect will start to drop out of the transport element of inflation which was the largest contributor to the increase in February,” said Russ Mould, investment director at AJ Bell.

Mitual Patel, head of interest rates for Henderson agreed, saying that it still seems unlikely that the Bank of England will raise rates given the high degree of uncertainty over Brexit, but today’s inflation data certainly highlighted two-sided risks for the outlook.

The Government announced yesterday that Prime Minister Theresa May would trigger Article 50 of the Lisbon Treaty on March 29 and initiate the two-year negotiation process for leaving the European Union.

“Should rates begin to rise in the US and Europe, any further weakening in the exchange rate may be both undesirable and unwarranted, and cause the Bank of England to sound more hawkish,” said Patel.

Inflation Erodes Growth in Wages

The rising cost of living has eroded wage growth according to the ONS. The UK labour market report showed wage growth slowed to 2.3%, excluding bonuses, from 2.6% in the previous three-month period.

“This is a serious threat to living standards. The next step is to see how much of this increase in prices can be included in wage negotiation; otherwise we will start to see consumers feeling the pinch in their pockets,” said James Klempster, head of investment management at Momentum UK.

Klempster advised it was imperative to invest today in a strategy that aimed to deliberately generate returns in excess of inflation.

According to Morningstar Direct, the top 20 FTSE 350 dividend paying stocks pay an average 6.5% dividend yield.

Saving Rates Rise Over Two Months

According to the comparison website, the number of rates being raised across the savings markets has outweighed the number of cuts for the last two months. In February, 87 savings rate rose, while 27 rates were cut. The average two-year fixed rate raised above November 2016 levels, reaching 1.1%.

The rise in savings rates were focused on the fixed rate bond market, as ISA rates are still struggling compared to fixed rate bonds, with 48% of the easy access market paying 0.25% or less, said Charlotte Nelson, finance expert at

The best cash ISA account on the market now only offers 1.85%, from United Trust Bank’s cash ISA five-year bond, according to data compiled by and Withdrawals are allowed from this product, subject to a penalty that is equivalent to the number of days left until maturity, apart from interest, which can be withdrawn annually. The provider accepts previous years’ ISA allowance transfers in only.

The best cash ISA easy access account is National Savings & Investments’ direct ISA with 1% rate.

Savers who are looking to lock money up for a short period of time, could consider United Trust Bank’s two-year bond paying a rate of 1.8%. United Trust Bank’s one-year bond offers the rate of 1.6%.

“To beat inflation, savers would need to look at high interest current accounts, though you are limited to smaller amounts and there are usually a number of hoops to jump through with these accounts,” said Tom Adams, head of research with

Nationwide Building Society’s FlexDirect current account offers a 4.89% rate for the first 12 months; however, interest reverts to 1% afterwards. To qualify, £1,000 of new money must be deposited into the account each month, up to a maximum of £2,500 in the account. 

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

Facebook Twitter LinkedIn

About Author

Karen Kwok

Karen Kwok  is a Reporter for

© Copyright 2024 Morningstar, Inc. All rights reserved.

Terms of Use        Privacy Policy        Modern Slavery Statement        Cookie Settings        Disclosures