Building society raises interest rates – does it beat inflation?

Bank of England has increased interest rates in August

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Earlier this month, Teachers’ Building Society confirmed it was raising the rates on four of its cash ISAs, which includes its easy access and notice cash ISA options. However, this most recent interest rate increase comes amid a high and fluctuating inflation rate which is diminishing savings accounts in the UK. As it stands, the country’s inflation rate has hit 9.9 percent which is a slight dip from the month before but still remains high for savers hoping for returns.

The building society raised the interest rate of its Cash ISA (Issue 6) to 1.65 percent tax-free/AER.

Furthermore, Teachers’ Building Society increased the rate of its Cash ISA notice 90 (issue 10) to 1.70 percent tax-free/AER.

Both accounts are open to all savers, not just teachers and educational professionals, and have an operating balance of £100.

The easy access variable rate cash ISA for teachers now pays an interest rate of 1.70 percent tax-free/AER, while the education ISA is now at 1.75 percent.

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David Leek, the commercial director at Teachers Building Society, outlined why these newly hiked rates are among the “best on the market”.

Mr Leek explained: “With rates rising, more savers could breach the Personal Savings Allowance (PSA) for the first time, making cash ISAs especially attractive to those who have built up savings and could now face paying tax on the interest earned.

“We can help with transferring in savings from other providers to make the process smoother.

“Those who choose Teachers Building Society can also benefit from knowing that by saving with us, they are choosing an organisation whose values are rooted in social purpose – helping more teachers buy their first home.”

However, the building society’s most recent intervention fails to compete with an inflation rate of 9.9 percent.

Last month, Citi Bank warned inflation could reach as high as 18 percent next year due to rising energy bills which are exacerbating the cost of living crisis.

Energy bills were expected to exceed £3,400 next month due to wholesale pressures on the gas and electricity market, as well as the war in Ukraine.

Despite this, the Government’s energy price guarantee is set to cap household bills at £2,500 from October but concerns have been raised that this could be inflationary.

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Experts are worried this policy, which is being paid for by Government borrowing, could fan the flames of the country’s cost of living woes.

Personal finance analyst Alice Haine from Bestinvest broke down how the building society’s offering remains “no match” for inflation.

The  expert said: “Consumers may now be able to find easy-access accounts with rates as high as 1.85 percent and fixed-interest rates of 3.75 percent – the highest level in more than a decade thanks to the BoE’s spate  of interest rate rises – but this is still no match inflation of almost 10 percent. 

“The only consolation is that the BoE is widely expected to raise the base rate again next week, a move that should see savings rates edge up further. 

“The key for savers looking to mitigate the damaging effect of inflation is to shop around for the best deals on the market.”

In light of the impact of inflation on people’s savings, Ms Haines outlined why households should prioritise putting money aside for a rainy day during these turbulent economic times.

She added: “Remember, it is vital to have some cash set aside for life’s emergencies, particularly in this ever-present cost-of-living crisis.

“While the recommendation is to hold onto three to six months’ worth of monthly expenses, those with nothing set aside should strive to save a small amount towards that target every month.

“Each contribution, however small, will help to ease the financial stress that can come with having no backup funds in place.”

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