Which? finds the latest inflation-beating accountsFood prices cause inflation to increase to 3.5%

17 April 2012

Inflation rises again

As inflation creeps back up to 3.5%, finding sufficient savings remains a headache

UK inflation is back on the rise after higher food prices helped take the consumer price index (CPI) up to 3.5% for March 2012, according to the Office for National Statistics.

CPI, which is the standard measure for inflation, increased by 0.1 percentage points from February to March, following five consecutive months when it fell.

Retail prices index drops to 3.6%

The rising price of meat, bread, fruit and cereals was a key contributor to higher inflation, while clothing and recreation and culture also forced the figure upwards.

The Retail Price Index (RPI), which includes mortgage interest payments, fell to 3.6% in March from 3.7% in February, as the cost of motoring expenditure, fuel and light were all lower.

Inflation is still notably higher than the Bank of England’s 2% target, making life difficult for savers, especially given that the Bank of England’s base rate remains locked at 0.5%.

Savings accounts that beat inflation

Basic rate taxpayers would need to receive interest of 4.4% to make real returns, once inflation is accounted for, while higher rate tax payers would need 5.85%.

Standard savings accounts

The best rate instant access savings accounts currently pay a maximum of 3.06%, so you would need to lock your money up for a number of years to beat inflation. However, you then risk missing out on better rates if the Bank of England base rate rises during that time.

There are four best rate savings accounts currently paying 4.4% or above, all of which are 5-year, fixed-rate accounts. AA's Postal five-year Fixed Rate Bond tops the table, with 4.60%.

Cash Isas

Putting your savings into a cash Isa will give you a much better chance of securing inflation-beating returns as you don't have to pay any tax. The maximum you can put into a cash Isa during the 2012-2013 financial year is £5,640.

There are two instant-access cash Isas currently matching CPI at 3.5%, from AA and Cheshire Building Society, but none beating it.

Saga has a one-year fixed rate Isa paying 3.6% (available to over 50s only), while Santander's one-year Direct Isa pays 3.5%.

There are six two-year fixed-rate cash Isas beating CPI, with Birmingham Midshire leading the way with an offer of 4.05%. Meanwhile, Halifax's five-year Isa pays a fixed 4.5%, while a number of other longer-term accounts are also beating inflation.

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