Which are the best savings accounts to beat inflation?CPI drops to 1.6% in July

19 August 2014

Piggy bank

Six banks and building societies have signed up to the Help to Buy Isa scheme so far

UK inflation fell more than expected in the year to July, making it easier for savers to find a cash Isa and savings account which beats rising prices.

The consumer prices index (CPI), the standard measure for inflation showing how prices have changed over the last 12 months, dropped to 1.6% in July, down from 1.9% in June, according to the Office for National Statistics (ONS).

This unexpectedly steep drop keeps it well below the Bank of England's 2% target. The retail prices index (RPI) fell slightly, from 2.6% in June to 2.5% in July. 

Tax-free savings to beat inflation

With inflation at its current level, a basic-rate taxpayer would need to find a savings account paying 2.00% to beat CPI, while higher-rate taxpayers would need an account paying 2.67%.

As all interest earned within a cash Isa is free from tax, you just need one that at least matches the headline inflation rate. There are currently 84 that pay at least 1.6%, but none of these give instant access to your money.

Which? Comparison Table: Best rate cash Isas – all available deals compared

Hundreds of savings accounts can now beat inflation

CPI is at its lowest rate for more than four-and-a-half years, making it easier to find accounts that offset its effects. Last year, it rose as high as 2.8%.

Of the 873 savings accounts on the market, including cash Isas, 170 accounts are able to beat inflation for basic-rate taxpayers. However, you'll need to tie up your money for at least a year in a cash Isa and two years in an ordinary savings account.

Higher-rate taxpayers will have to tie their money up for three years to earn more than 2.67%. In such a volatile market, it’s worth worth thinking carefully before tying up your money for so long.

Which? Comparison Table: Best rate savings accounts – all available deals compared

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