Dean Butler, Managing Director for Retail Direct at Standard Life, part of Phoenix Group said: “With energy prices about to rise again and the full impact of high interest rates kicking in, times are still tough for many. However, inflation falling further than expected will take some of the strain off struggling households and some people think it could lead to the Bank of England lowering the base interest rate next year, which would help people with mortgages or unsecured debt, like payday loans or credit cards.
“This also means that for people who are able to save, now is the time to act and shop around for the accounts paying the best interest rate suited to their needs. There are quite a few easy access cash-based savings accounts currently offering inflation-busting rates, giving savers the chance of seeing real returns on their cash savings for the first time in many years – and it’s possible we’ll see rates fall before too long. Our analysis found that if inflation fell to the Bank of England’s target of 2%, someone with £10,000 to save who grabbed a 5% interest deal could see their savings worth £10,588 in real terms after two years. However, someone with the same amount to save who missed the best offers and picked up a 3% deal would have £400 less after two years (£10,189).
Growth on £10,000 at 2% inflation
Year 3% Interest 5% Interest
1 £10,094 £10,290
2 £10,189 £10,588
“For those with a greater appetite for risk, investing offers a greater chance of substantial returns, but there’s always the chance of losing money too. People able to take a long-term view could consider saving into a pension, which offers both the benefits of investing and tax efficiency.”
Becky O’Connor, Director of Public Affairs at PensionBee, said: “Today’s lower than expected rate of inflation brings a much welcomed respite as we approach the New Year. A sustained decrease in inflation could signal the beginning of the end of the cost of living crisis, although prices are still high and the painful effects of this difficult period will continue to be felt for some time.
“For those trying to preserve the long term value of their life savings, including their pension, returning to lower inflation is vital. Retirees have been struggling to make their pensions last in the face of high inflation; while workers trying to boost their future pension pot have faced an uphill battle to maintain the real future value of their savings. A return to more normal economic conditions will be a boost to financial resilience and security and may enable people to start reprioritising planning, rather than just getting by.”
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