Savings accounts to beat inflation revealedConsumer prices index falls to 2.4%

18 July 2012

Inflation hands

UK inflation fell to 2.4% in June, its lowest level since November 2009, making it far easier to find savings accounts that deliver positive real returns.

The consumer price index (CPI), the standard measure of inflation, fell to 2.4% from 2.8% in May. This was largely due to the lower price of clothing and footwear, as summer sales started early, transport, particularly petrol and diesel, and food and non-alcoholic drinks.

The retail price index (RPI), which includes mortgage interest payments, fell to 2.8% in June, down from 3.1% in May, led by lower year on year prices for motor fuel, food, clothing and footwear. They were offset slightly by the price of leisure goods and housing, which have increased.

Inflation nearing Bank of England target

Inflation has now been falling steadily since September 2011 when it stood at 5.2% and although it remains above the Bank of England target of 2%, there are now plenty of places to put your money and earn real interest.

If you're a basic-rate taxpayer you now need to be earning interest of 3% to match inflation and 3.5% to equal RPI. If you’re a higher-rate taxpayer you need to be earning 4% to match inflation and 4.7% to top RPI.

Savings accounts that beat inflation

Our best-rate tables can help you find the accounts to provide that kind of interest. There are currently five instant access savings accounts paying above 3% with krbs and Santander both offering 3.2%, although Santander's rate drops to 0.5% after one year.

There are a couple of notice savings accounts paying higher interest, including Manchester Building Society at 3.36% and krbs and 3.35%.

Cash Isas providing best returns

Investing in an Isa is tax free so it's important to use up your annual allowance (£5,640 this tax year) if you can. The best-rate instant access cash Isa at the moment is Santander's, which pays 3.3%, dropping to 0.5% after a year. Manchester Building Society and the Post Office also have accounts paying over 3%.

Santander is offering 3.5% for a one-year fixed-rate cash Isa, while a host of others are paying 3.35%. The best rate cash Isa account on the market at the moment is Halifax's five-year fixed-rate Isa, paying 4.15%.

For more information on which bank to choose, take a look at the updated list of Which? recommended providers.

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