Inflation rates puts squeeze on savers as UK is in the midst of a 'silent savings crisis'

The Investment Guaranteed Growth Bond, sold exclusively through National Savings & Investments (NS&I), will pay a fixed rate of 2.2 per cent for three years.

Consumer price inflation figures published yesterday showed growth of 2.3 per cent a year in March, which means that savers in Hammond’s bond will still see their money erode in real terms.

Danny Cox, chartered financial planner at Hargreaves Lansdown, said the squeeze on savers is set to continue: “The NS&I bond’s 2.2 per cent already falls short of inflation and this gap is likely to widen over the next few months as inflation climbs higher.”

Cox said the bond will still be popular because it is backed by the Treasury: “Unlike the NS&I pensioner bonds, launched in 2015, this is available to everyone aged 16 and over, with the offer open for a full year.”

However, savers aged between 18 and 39 may prefer the Lifetime Isa, which offers a 25 per cent bonus to those saving for a first property deposit or retirement, worth £1,000 on the maximum £4,000 investment, Cox said.

“This is a far better return than you will get on the new NS&I bond,” he added.

LOCKED IN personal finance expert Andrew Hagger said the bond’s appeal is further reduced by its maximum £3,000 limit: “You also have to lock your cash away for three years, which is scant reward for savers who have endured rock-bottom rates for too long.”

Hagger said the bond offers only slightly more than the best savings from the new breed of “challenger” banks: “You can already earn 2 per cent with Secure Trust, 1.90 per cent with Vanquis Bank and 1.87 per cent with Charter Savings Bank.”

All of these are covered by t h e Financial Services Compensation Scheme (FSCS), which protects the first £85,000 of savings.

“The NS&I bond pays just £6 a year more than Secure Trust, so it does not deliver a great deal extra when you crunch the numbers.”

Rachel Springall, finance expert at, said Hammond’s bond could soon trail the market if savings rates continue their recovery: “There are encouraging signs of improvement, with the average five-year fixed rate now paying 1.81 per cent, the highest since August.”

She said that only one out of 740 accounts now beats inflation, Ikano Bank’s fiveyear fixed bond, paying 2.35 per cent on £1,000 and above.

This is only available online and is covered by the Swedish Deposit Insurance Scheme, rather than the FSCS. US motor manufacturer Ford has now entered the savings market with rates including 0.85 per cent on easy access and 1.50 per cent fixed for two years, but these can be bettered elsewhere (see best buys on page 38).

Inflation is being driven higher by price hikes on food, alcohol, tobacco and clothing, offsetting a dip in petrol prices and airfares.


Richard Theo, chief executive at, said the UK is in the midst of a “silent savings crisis” with prices outpacing savings rates at a cost of around £6.8billion a year, the equivalent of taking almost £95 out of each saver’s pocket every year.

Despite this, experts said the Bank of England is unlikely to hike base rates from today’s 0.25 per cent.

However, Russ Mould, investment director at AJ Bell, said suggestions that retailers would use Brexit as an excuse to pass on price hikes have been proven wrong, offering some hope to savers: “There may not be the real build-up in inflationary pressure that many were fearing.”

Daily Express :: Personal Finance Feed

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