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Which? reveals savings accounts to beat inflation

CPI down to lowest level in three years

Pound coins in the shape of a graph

More good news for savers came today as the Office for National Statistics (ONS) announced a second consecutive fall in inflation, pushing more savings products above the level that would mean your money is growing in real terms. 

The consumer prices index (CPI) fell from 2.5% to 2.2% in September – the lowest level of the index for three years. Meanwhile, the retail prices index (RPI) – the measure of inflation that includes mortgage interest payments – fell to 2.6%. This was down from 2.9% in August. 

What caused the drop in inflation?

The ONS stated that the key driver of the fall in inflation were last year’s energy price hikes falling out of the index. But the drops in CPI and RPI may only be short-lived – with energy companies announcing a new round of energy price increases over the past week, in addition to rising food prices, it is expected that inflation may rise for October. 

The drop in inflation levels also spells bad news for those on benefits. The September CPI figures are used to calculate increases in benefits such as income support and Jobseeker’s Allowance, meaning much lower increases than the previous year, when CPI stood at 5.2%.

Savings accounts to beat inflation

The falls in inflation spell good news for savers. A basic-rate taxpayer would need to find an account paying 2.75% to beat CPI, and an account paying 3.25% to beat RPI. 

Higher-rate taxpayers have a harder task – they would need an account paying 3.65% to beat CPI and 4.34% to beat RPI. 

Savings accounts

For the first time in years, there are now three instant-access savings accounts that will pay equivalent to or more than inflation for basic-rate taxpayers. The AA’s Internet Extra Issue 4 account pays 2.8% and accounts from Saga and Derbyshire both match CPI. 

If you are looking to outstrip RPI, you’ll need to lock your money up for longer. Basic-rate taxpayers could opt for M&S Money’s two-year fixed-rate savings account, which pays 3.25% to match inflation, or three-year fixed-rate accounts from United Bank, the AA, Bank of Scotland, Virgin Money and M&S Money, which pay up to 3.5%.

Higher-rate taxpayers still need to look at longer terms. Only the Shawbrook four-year fixed-rate account beats CPI, paying 3.75%, while for five-year fixed rates the Vanquis Bank account pays 3.71%. No accounts outstrip RPI for higher-rate taxpayers.

Cash Isas

If you haven’t already used your Isa allowance, there are plenty of cash Isas that let your money grow free of tax and above the levels of inflation. All of our Best Rate instant-access cash Isas beat both CPI and RPI now, with the best instant-access cash Isa from the Post Office paying a healthy 3.01%.

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