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Inflation drop to 1.8% makes life easier for savers

14 July 2009 / by Rebecca Sargent

The CPI annual inflation rate has dropped to 1.8 per cent, the latest statistics from the Office for National Statistics have revealed, making it easier for savers to get a real return on their cash.

At 1.8 per cent the CPI rate is now 0.2 per cent below the Government's target rate of two per cent, which could be cause for concern for the Bank of England's Monetary Policy Committee (MPC).

Nevertheless, the drop in CPI means that savers are now faced with a far bigger choice of savings accounts, Andrew Hagger at Moneynet.co.uk argues, as 1.8 per cent equates to a gross rate of 2.25 per cent for a basic rate tax payer and three per cent for a higher rate tax payer.

Commenting, Mr Hagger said: "Competition in the fixed rate bond sector has been fierce and as a result basic rate and higher rate tax payers will no longer find it a struggle to achieve a positive return on their savings.

"The incentive to save is well and truly back on the agenda," he adds, "and for those relying on savings interest to supplement their fixed income, the outlook has vastly improved compared with just 6 months ago."

Best buy fixed rate bonds, according to Moneynet.co.uk, include ICICI Bank fixed rate bonds and the Post Office Growth Bond amongst others, and interest rates are now topping five per cent for a five year investment.

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