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Inflation hits four-year high at 2.9%: can any savings account beat it?

Rising fuel and clothing prices hit consumers as Brexit bites

Inflation has soared to 2.9% – matching the four-year high seen in May 2017 – as rising food and fuel prices continue to squeeze consumers. And it’s terrible news for savers – not a single unrestricted account can beat the Consumer Prices Index.

Inflation is now four-and-a-half times higher than it was this time last year. Aside from May, the last time inflation hit 2.9% was in June 2013.

The Office for National Statistics states that the Brexit effect and the fall in the value of sterling is one factor in the rise in prices, and that the ‘overall rate in the UK is higher than in most other EU countries, including all of the larger western European nations.’ It also stated that increasing global commodity prices could also be a factor in the rise in inflation in the UK.

Clothing inflation was 4.6% – the highest on record – which was again blamed on the exchange rate impacting on imported goods.

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Is there any point using a savings account anymore?

Low interest rates and high inflation put savers in a miserable situation. It is now impossible to find a savings account that beats the latest rate of inflation without being tied into another product with a bank or building society.

Perhaps that’s why, as we reported two weeks ago, investments in cash Isas have shrunk significantly in the past year.

Looking at the rates on offer on the Which? Money Compare savings tables, we found that:

  • The best easy-access account pays 1.5%
  • The best one-year fixed-rate account pays 1.9%
  • The best two-year fixed-rate account pays 2.2%
  • The best three-year fixed-rate account pays 2.3%
  • The best four-year fixed-rate account pays 2.31%
  • The best five-year fixed-rate account pays 2.51%

Only regular savings accounts, on offer from high-street banks and building societies, offer accounts that beat inflation paying a rate of 5%. But these accounts come with a number of restrictions – namely that you have to hold a bank account with the banks already to qualify for this attractive rate.

First Direct limits monthly savings to £300 (£3,600 over a year), while HSBC, M&S Bank and Nationwide limit savings to £250 per month. Santander limits monthly savings to £200.

Even if you do qualify for one of these accounts, you may still fall foul of some of the rules of regular savings. Often you’re unable to make withdrawals at all through the year, or you could be penalised for taking money out of your account.

What can I do to get a better return on my money?

More and more people are turning to the stock market to fight off rising prices and get more for their money. For the first time ever, savers placed more money into stocks and shares Isas than cash Isas in the previous tax year (£315bn compared to £270bn).

The FTSE All Share, the stock market index that measures the share performance of all listed companies in the UK, grown by 14.3% in the past 12 months. The FTSE 100, which measures the share performance of the biggest 100 firms, has grown by 14% over the same period.

Our video explains what a stock market index is, and financial products called tracker funds, which can help you invest in the markets in a straightforward and fuss-free way.

Remember, when you invest you could lose money – but if you have the time to leave it in the market, you should be able to ride out the ups and downs that investing in shares can bring.

Find out more about investing your money in our dedicated investments section.

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