Over half of Isas beat inflation

Updated: 

PA

More than half of Isas now offer rates that will beat inflation, a financial information website has reported.

Moneyfacts said that out of the 215 tax-free Isa accounts on the market today, 115 offer inflation-beating returns.

Of the 619 savings accounts on the market which are not Isas and so are not ring-fenced from the taxman, there are 72 which will beat the eroding effects of tax and inflation.

This means there are 187 Isa and non-Isa savings accounts on the market which offer real returns.

This marks a sharp turnaround compared with a year ago, when none of the 820 savings accounts on the market, including Isas, could beat the May 2013 Consumer Prices Index rate of inflation, which stood at 2.7%.

As the CPI measure fell to 1.5%, Moneyfacts said that to beat inflation, someone paying basic rate tax at 20% now needs to find a savings account paying an annual rate of 1.88%, while a higher rate taxpayer at 40% needs to find an account paying at least 2.50%.

From next month, savers will also feel the benefits of being able to put much more of their cash away tax free, with the creation of a new "super Isa".

As announced in the Budget, the overall Isa limit will increase to £15,000 from July 1, and the full amount can be held in either cash, or stocks and shares, or a combination of both.

Moneyfacts cautioned that despite the pressure of inflation easing back, it is not all good news for savers, as the rates on offer are still generally poor in the low interest rate environment. Average savings rates across the market have fallen compared with a year ago.

For example, the average easy access savings account now pays a rate of 0.63%, after having fallen from 0.71% in 2013. The typical Isa now pays 1.58%, compared with 1.74% a year ago.

According to Moneyfacts' "best buy" tables, the top-paying five-year fixed-rate cash Isas are from Leeds Building Society and Julian Hodge Bank. Both pay a rate of 2.85%. Meanwhile, Coventry Building Society offers a rate of 2% on its "branch instant" Isa.

For people looking to lock their money away in a bond, Shawbrook Bank offers a five-year fixed-rate deal at 3.1%.

Sylvia Waycot, editor at Moneyfacts.co.uk, said: "The Bank of England underperformed its 2% target for inflation this month, which should make it easier to find savings accounts that outperform CPI and the taxman."

She continued: "The imminent arrival of the super Isa means that we will all be able to legally stash more money away from the taxman this July, but the euphoria will be short-lived if the accounts pay so little the taxman hardly notices."

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