10 savings accounts to beat 2.3% inflation
Savers are facing a new battle as the UK’s rate of inflation continues to be higher than the interest rate offered by almost all savings accounts.
The Consumer Prices Index (CPI) rate of inflation reached 2.3% in the year to March, the Office for National Statistics announced. This means that just one available-to-all savings account currently pays a level of interest that beats or matches the rate of inflation.
The savings account which currently offers the highest rate of interest is Ikano Bank’s five-year fixed saver - but this only pays 2.35%, marginally higher than inflation.
Bank of England policymakers expect the inflation rate to reach as much as 2.8% in the first half of 2018. So there could be further struggles for savers ahead.
How can I make my cash beat inflation?
Consumers with a First Direct current account, HSBC Advance or Premier account, M&S Bank current account, Nationwide Flex account or Santander 123 account can access linked regular savings accounts offering 5% interest.
Lloyds Bank’s Club Lloyds account holders can also access a 3% regular saver with their bank. However, these accounts also have limits to the amount holders can pay in each month.
|Regular saver provider||Interest rate||Savings limits (per month)|
|First Direct||5%||£25 - £300|
|HSBC||5%||£25 - £250|
|M&S Bank||5%||£25 - £250|
|Nationwide||5%||£1 - £500|
|Santander||5%||£1 – £200|
|Lloyds Bank||3%||£25 - £400|
Current accounts could be a better bet for your savings – especially if you want easy access. The Nationwide FlexDirect account pays 5% interest on balances up to £2,500 for the first year, but this drops to 1% thereafter.
Tesco Bank offers 3% on balances up to £3,000 while TSB also pays 3% interest on its Classic Plus current account, but only on balances up to £1,500. Remember that you have to meet certain requirements, such as minimum pay-ins, to get these accounts.
Regular savings accounts
The attraction of these accounts is the high interest rate they pay. They require customers to deposit money each month, without fail. They come with a number of restrictions, such as monthly deposit limits, no one-off lump sum deposits and restricted withdrawal facilities. Although they are marketed with impressive-looking rates, it’s important to remember that as your money builds up gradually, your overall return will be lower than if you’d deposited a lump sum.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An account opened with a clearing bank (few building societies offer current accounts) that provides the ability to draw cash (usually via a debit card) or cheques from the account. Some pay fairly minimal rates of interest if the account is in credit. Most current accounts insist your monthly income (salary or pension) is paid directly in each month and they offer a number of optional services – such as overdrafts and charge cards – which are negotiable but will incur fees.
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).