Santander launches savings account with 2.5% interest rate – but does it beat inflation?

Martin Lewis advises on savings accounts and premium bonds

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The 123 Regular e-Saver is available to new and existing customers of the bank and allows savers to despoti up to £200 per month. While the 2.5 percent interest rate is competitive in today’s market, the recent rise in inflation to nine percent threatens its value to those interested in Santander’s latest offering. Furthermore, financial experts expect the inflation rate to hit ten percent at some point this year.

Hetal Parmar, the head of Banking and Savings at Santander UK, outlined why the bank has opted to hike rates for its customers.

Ms Palmer explained: “We understand saving for the future remains important to many customers.

“Following the recent increase to the interest rate on our 123 Current Account, we’re pleased to offer 123 World customers even more value with our new Regular e-Saver.”

Recently, the Bank of England’s Monetary Policy Committee (MPC) has raised the country base to one percent.

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This is the highest rate since February 2009 and is a sign the financial institution is taking the cost of living crisis seriously.

However, criticism has been directed towards the UK’s high street banks and building societies for not passing on this rate hike to savers.

While the 2.5 percent Regular E-Saver is welcomed by many, with ten percent inflation on the horizon, savers have few options to boost their finances.

Steven Cameron, the pensions director at Aegon, warns that the current climate is a “bad situation” for savers as inflation leaves little room for rate benefits.

Mr Cameron explained: “Aegon analysis of inflation and interest rates over the last 50 years shows that people are losing more purchasing power now than at any other time over the last 44 years.

“You need to go back to November 1977 for as bad a situation, when inflation was at 13 percent, or six percent above the base rate of seven percent.

“When inflation was as high as it is now, in early 1992, the base rate was sitting at over ten perent.

“That meant cash savers achieving this return were still beatng inflation and seeing their purchasing power increase by around three percent a year.”

In light of the pressures placed by rising inflation, Mr Cameron noted that many individuals may opt to avoid saving in the interim period until the cost of living goes down.

He added: “With inflation likely to remain well above interest rates for the foreseeable future, individuals might consider investing any cash savings they are unlikely to need in the short term.

“However, investing in stocks and shares comes with risks and can go down in value. It can be worthwhile seeking financial advice.”

The latest update of the UK’s inflation figures will be confirmed on June 22, 2022.

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