More Savings Accounts Achieving a Real Return

Written by Karen Bryan

£1 coin pileAn increasing number of savings accounts in the UK are achieving a real return, meaning that the rate of interest earned is higher than the rate of inflation. This is especially true for tax free Cash ISA savings accounts.

The rise of real returns has been brought about by two factors. The rate of inflation (measured by the Consumer Price Index) dropped to 2% in December 2013; its lowest rate since November 2009. In addition, interest rates appear to have started creeping up, e.g. the Post Office Two Year Fixed Rate Cash ISA is paying 2.25%.

In November 2013, I wasn’t very happy transferring a maturing fixed rate Cash ISA into a Halifax Three Year Fixed Rate Cash ISA which paid 2.5%. However, that was highest rate I could find at the time.

We’re hoping that the rate of inflation stays at 2% or lower and that interest rates on savings accounts keep increasing, in particular around the start of the new Cash ISA year on 6 April 2014.

My husband has a fixed rate Cash ISA maturing in mid April 2014. We’re not keen to tie the money up for more than two years, in the hope that the Bank of England does increase the base rate by 2016. I’m starting to feel a bit more optimistic that we’ll able to find a new home for this cash in a two-year fixed rate Cash ISA that will earn a small real return.

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