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Should you be switching to save?

petrol pumpSome good news at last: inflation fell last month from 3% down to 2.7% thanks mainly to lower petrol prices. Falling inflation means there’s less pressure on the Bank of England to put interest rates up – so that’s good news for mortgage borrowers. And what could be better than paying less for food?

Savers won’t be welcoming the news that interest rates are less likely to go up although at least they are losing less money than before. The best easy access Isa rate is currently 1.3% from Nationwide: with inflation at 2.7% you’re losing money on this deal. But while base rate is important to savers, it’s not the only thing that affects the interest rates which are paid. There are also market forces – if a bank wants to attract funds in from savers they are going to set a rate to attract money in. These last two weeks of the tax year are peak savings time as savers rush to use their Isa allowances. Moneyfacts says that 22 providers have increased cash Isa rates or launched new deals.

However it’s still impossible to beat inflation in a cash Isa – but you can, oddly, in some current accounts which deduct tax from interest paid. TSB pays 3% on credit balances on its account, as do Nationwide and Tesco Bank. Watch out for rules on how much you have to pay in every month and other conditions. Very few of us move our current accounts. Research from TSB (which obviously has an interest in this) found that 39% of us have the same bank their parents chose for them. I plead guilty(ish) to this: I’ve been with the same bank since I was 18 although my choice was influenced more by the free railcard than by my parents – although they did have accounts with the same bank. TSB says only 2% of UK consumers used the Current Account Switching Service last year even though the typical customer would be £70 better off if they moved accounts.

While I’m still not going to move my current account – I’ve never had any problems with my bank and until I do, I’m happy enough to stay put – you probably should. There are cash incentives for doing so – you can find an up to date list of them here. As far as savings are concerned, I won’t be putting new money into a cash Isa in the new tax year. Even if inflation is licked (and it may well not be) I don’t think savings rates are going to be worth bothering about for a while. I’d rather risk investing in a share Isa – see Jane’s tips for beginners’ Isa funds here. It might be a gamble, but it’s better than losing money – which is the only thing currently guaranteed if you have money in savings.

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Monday, 17 December 2018