The best inflation-beating current accounts and ISAs

Inflation is rising fast. Find out which savings products can match it and what your other options are.

The best inflation beating current accounts and ISAs

Inflation jumped to 2.3% in February, according to the latest figures from the Office for National Statistics.

The increase, which was driven by rising fuel and food costs, means your savings must work harder than before to keep pace with the rising cost of living.

But with savings rates at record lows that's a hard job to do!

To protect your pot, you'll need to find an account paying at least 2.3%, so long as the interest you earn is within your Personal Savings Allowance for the 2016/17 tax year.

The Personal Savings Allowance (PSA) allows you to earn £1,000 tax-free interest a year if you're a basic rate (20%) taxpayer or £500 tax-free interest a year if you're a higher rate (40%) taxpayer.

To help you find the best home for your savings, we've rounded up the best inflation-beating accounts paying 2.3% or more.

Savings accounts

Unfortunately, there aren't any accounts which beat inflation at the moment.

However, one out of the 793 savings accounts on the market matches inflation. The Milestone Savings Fixed Term Deposit is a five-year bond with a minimum £10,000 deposit and an interest rate of 2.3%.

The good news is that savings rates are generally on the rise, with the average two-year fixed bond sitting at 1.10%, the highest since November 2016.

In February, rate rises outstripped rate reductions for the second month in a row, with 87 increases and 27 decreases. But unfortunately, it's not enough to contend with ever-climbing inflation.

Why current accounts are better

It's worth remembering that current accounts still offer better rates than traditional savings deals.

These might be especially useful as savings accounts for those that have used up their PSA and need to chase much higher rates to beat inflation.

For example, the Nationwide FlexDirect account offers 5% on balances of up to £2,500 for the first 12 months. However, this will drop to a measly 1% after the first year.

The TSB Classic Plus account pays 3% on balances of up to £1,500. You'll need to deposit £500 a month and opt for paperless statements to qualify for the rate each month.

The Tesco Bank Current Account also pays 3% but on balances up to £3,000. Unlike other current accounts it's easy to use as a savings account as you don't have to set up and Direct Debits or deposit a minimum amount each month to benefit.

However, the popularity of this account has caused it to freeze new applications, with no indication of when it will be available again.

Meanwhile, the Bank of Scotland Current Account with Vantage pays 3% on balances of £3,000-£5,000. However, you must pay in at least £1,000 each month and have at least two Direct Debits set up on the account to benefit.

Lloyds Bank's Club Lloyds pays 2% on up to £5,000. You need to pay in at least £1,500 a month otherwise there's a £3 monthly account fee.

Other options to consider

With inflation forecast to keep rising, it might be worth considering moving some of your cash into other places that have more risk but could offer greater rewards.

If you haven't used some or all your tax-free ISA allowance, you have up to £15,240 to play with.

Or there's peer-to-peer lending, where you lend your money to individual borrowers or businesses or investors.

This area currently isn't protected by the Financial Services Compensation Scheme but could offer far higher returns than a high-street account.

Lending Works recently launched the first mainstream Innovative Finance ISA (IFISA), which promises to pay up to 4.5% tax-free.

Compare savings accounts and ISAs