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The savings accounts to beat inflation revealed

Consumer prices index falls to 3%

Savings prospects brighten

Falling inflation creates a brighter picture for savers seeking real returns

UK inflation fell to its lowest level for almost two-and-a-half years in April, with the consumer price index now at 3%, down from 3.5% in March.

The price of transport, alcohol, tobacco, clothing and footwear were the main contributors to the decrease in annual inflation, rising less than they did at the same stage in 2011. The most notable contributor was plane tickets with the price of air fares rising by 7.4% between March and April this year, compared to 29% last year, partly due to the timing of Easter.

The consumer price index (CPI), the standard measure of inflation, has been well above the Bank of England’s target of 2% since November 2009 and has not been below 3% since December that year.

The retail price index (RPI), which includes mortgage interest payments fell to 3.5% in April, down from 3.6% in March, despite increases in housing and petrol and oil prices.

Cash Isas beating inflation

With CPI down to 3% it is now possible to earn real returns on instant access Isas, bringing some welcome relief to savers. You can invest up to £5,640 in a cash Isa in 2012-2013, tax-free.

Our Best Rate Isa tables show four instant access accounts currently delivering interest above inflation, with Cheshire Building Society’s Direct Cash Isa topping the list, paying 3.35%.

If you’re willing to lock up your money for a longer period then you can get 4% interest on two and three-year fixed rate cash Isas from Santander and Halifax, respectively.

Savings accounts still struggling

It remains harder to beat inflation through a standard savings account, however, once tax has been subtracted from any interest earned. Basic rate taxpayers would need to receive at least 3.8% interest to make real returns, while higher rate taxpayers would require 5% just to match inflation.

The best paying instant access savings account, offered by Derbyshire Building Society pays 3.06% and the best one-year fixed rate savings account is currently Tesco Bank’s, paying 3.50%.

Several providers currently have three-year fixed rate savings accounts providing inflation-beating returns, including Halifax, Yorkshire Bank and Clydesdale Bank, as well as Close Brothers’ table topping account that pays 4%.

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