198 savings accounts now keep up with inflation

Updated: 
cashInflation fell again this week. This is great news for savers as it means that more accounts now offer an inflation-matching return at the very least.

It's been a tough few years for savers.

The Bank of England's base rate has been held at an astonishingly low level for three years now, while prices have risen at a relatively fast rate. In other words, inflation has been very high when compared to interest rates.

As a result, it's been hard for savers to find accounts that keep up with inflation let alone beat it.

Good news
So I was very pleased to see this week's news that the Consumer Prices Index measure of inflation had fallen to 2.5% in August, down from 2.6% in July, and 5.2% last September.

That means that a basic rate taxpayer only needs to find an account paying 3.12% to keep up with inflation. Once you've paid 20% income tax on 3.12% interest, you'll end up with a 2.5% return.


Of course, if you go for a Cash ISA, you won't have to pay any income tax, so an ISA paying 2.5% will do the business for you.

The really good news is that there are now 198 savings accounts that enable basic rate taxpayers to keep up with inflation even after they've paid income tax, according to Moneyfacts.

The top accounts
So let's take a look at the best of those accounts.

Sadly even after the fall in inflation, there are no instant access savings accounts that match inflation after tax, so I'll start with some one-year fixed rate bonds.

If you're prepared to lock your money away for a year, you could get a 3.35% return if you put your cash in the BLME 1 year Premier Deposit account. That's assuming you have a spare £25,000 to put in a savings account, as that's the minimum balance for the account.

If you don't have that kind of money, the Post Office Growth Bond (Issue 18) has a much lower minimum balance at £500 and will pay you 3.25% for a one-year bond.

As ever with savings accounts, you'll get a better return if you're willing to lock your money away for two years. Once again, the top-paying bond comes from BLME, but you can also get a great 3.5% rate from United Bank. This account has a £2,000 minimum balance.

Top one- and two-year bonds

Provider

Notice/term

AER/Gross

Minimum deposit

Notes

BLME 2 year Premier Deposit

Two years

3.75% (Anticipated profit rate)

£25,000

Sharia compliant, hence 'anticipated profits' not interest

Post Office Growth Bond Issue 18

Two years

3.51%

£500

United Bank 2 Year Fixed Deposit

Two years

3.5%

£2000

State Bank of India Hi Return Fixed Deposit

Two years

3.5%

£1000

BLME 1 year Premier Deposit

One year

3.35%

£25,000

Sharia compliant

State Bank of India 1 Year Fixed Deposit Offer

One year

3.33%

£10,000

Post Office Growth Bond Issue 18

One year

3.25%

£500

Tesco Fixed Rate Saver

One year

3.2%

£2000


When it comes to longer periods, you can get 4.6% on a five-year bond from BLME, while State Bank of India will pay 4.5% for a five-year bond. The great thing about these rates is that they will give you an inflation-beating return even if you're a 40% taxpayer.

For 40% taxpayers, the crucial figure is 4.2% interest. Any 40% taxpayer who is receiving interest above 4.2% is beating inflation.

At three years, I suspect the Co-operative Bank Fixed Term Deposit account will be popular with lovemoney.com readers as it offers a nice combination of a trusted high-street brand and a decent 3.62% return.

Top three-, four- and five-year bonds

Provider

Notice/term

AER/Gross

Minimum deposit

Notes

BLME 5 year Premier Deposit

Five years

4.6%

£25,000

Sharia compliant

State Bank of India Hi Return Fixed Deposit

Five years

4.5%

£1000

BLME 4 year Premier Deposit

Four years

4.2%

£25,000

Sharia compliant

Julian Hodge Bank Capital Millennium Bond

Five years

4%

£1000

BLME 3 year Premier Deposit

Three years

4%

£25,000

State Bank of India Hi Return Fixed Deposit

Three years

3.85%

£1000

Britannia 3 year Fixed Rate Bond Issue 47

Three years

3.62%

£1000

Co-operative Bank Fixed Term Deposit

Three years

3.62%

£1000

Post Office Growth Bond Issue 18

Three years

3.61%

£500

United 3 Year Fixed Deposit

Three years

3.6%

£2000

Social savings
Another option is to lend your money via a peer-to-peer website such as RateSetter or Zopa. You may be able to get a return as high as 7.6% from these sites.

Cash ISAs
And then there's tax-free Cash ISAs.

The Halifax ISA Saver five-year bond is the highest-paying ISA with a 5% interest rate. Of course, you'll have to lock away your money for five years, but you'll get the satisfaction of knowing you're getting a return that is double the current rate of inflation, and you won't have to pay any tax!

Provider & Account

Notice/Term

AER/Gross

Minimum deposit

Notes

Halifax ISA Saver Fixed 5 year bond

Five years

5%

£500

Halifax ISA Saver Fixed 3 year bond

Three years

3.75%

£500

Santander 2 Year Fixed Rate ISA

Two years

3.3%

£500

Kent Reliance 2 year Tracker ISA Issue 3

Two years

3.3%

£1000

Britannia Fixed Rate Cash ISA

Two years

3.3%

£5640

Post Office Fixed Rate Cash ISA Issue 8

Two years

3.25%

£500

Halifax ISA Saver Fixed

Two years

3.25%

£500

Metro Bank 1 Year Fixed Rate Cash ISA

One year

3.25%

£1

So the good news is your savings can beat inflation if you're prepared to lock away your money for at least a year.

Let's just hope that inflation doesn't start rising again! Then savers will be really fed up.....

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