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Which? reveals the latest accounts to beat inflation

Consumer Price Index falls to 2.5%

Inflation girl

UK inflation fell to 2.5% in August, setting it back on a downward route towards the Bank of England’s target of 2%.

The consumer price index (CPI), the standard measure of inflation, fell from 2.6% in July, partially reversing a rise from the previous month when it went up from 2.4% to 2.6%.

The price of furniture, household equipment and maintenance, housing and household services (particularly domestic gas) and clothing and footwear all rose by less in August 2012 than they did in August 2011, contributing to the fall in CPI. Year on year transport costs, particularly motor fuels, went up in August, offsetting the overall slide.

The retail price index (RPI), which includes mortgage interest payments, fell from 3.2% in July to 2.9% in August, largely driven by household goods, clothing and footwear and food.

Savings rates to beat inflation

With inflation back in decline, you have a number of options if you’re looking for a savings account that delivers real returns. If you’re a basic rate taxpayer you’d need to be earning interest of at least 3.15% to beat CPI and if you’re a higher rate taxpayer you’d need to be earning a minimum of 4.2%.

To make a return above RPI, lower and higher rate taxpayers would need to be earning interest of at least 3.65% and 4.85% respectively.

Best savings accounts to beat inflation

The best rate instant access savings account currently pays 2.95% but there are several regular savings accounts beating inflation. Norwich & Peterborough, Principality and Saffron building societies all pay interest of 4%.

There’s four one-year fixed rate savings accounts paying more than 3.15%, with Close Brothers offering the best rate of 3.30%. Close Brothers is also paying 3.75% on two-year fixed rate savings accounts, a rate only currently bettered by five-year fixed rate savings accounts, which pay up to 4%.

You can invest up to £5,640 in a cash Isa this financial year for tax-free returns. There are five instant access cash Isas paying 3% and upwards and several more over 2.5%. You can earn more by locking your money into a fixed rate Isa. Halifax tops the three-year fixed rate Isa table, paying 3.75%.

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