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Can any UK savings account beat inflation?

UK inflation rose to 1.9% in June

UK inflation has risen sharply since May, but it provides little respite for struggling savers as rates remain woefully low.

The consumer prices index (CPI), the standard measure for inflation showing how prices have changed over the last 12 months, rose to 1.9% in June, up from 1.5% in May, according to the Office for National Statistics (ONS).

Despite the unexpectedly steep increase, it still remains below the Bank of England’s 2% target.

How inflation erodes savings

With inflation at its current level, a basic-rate taxpayer would need to find a savings account paying 2.38% to beat CPI, and an account paying 3.25% to beat RPI.

Higher-rate taxpayers face a bigger challenge – they would need an account paying 3.17% to beat CPI and 4.33% to beat RPI. 

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 38 that pay at least 1.9%, but just one gives instant access to your money.

More accounts can now beat inflation

The good news is that the CPI is at a four-and-a-half-year low, making it easier to find accounts that offset its effects.

Of the 804 savings accounts on the market, including cash Isas, 72 accounts are able to beat inflation for basic-rate taxpayers. But there is a catch, you’ll need to tie up your money for at least two years in a cash Isa and three years in an ordinary savings account. 

Just four accounts managed to beat inflation for higher-rate taxpayers, but you’ll have to tie your money up for between five and seven years to earn more than 3.17%. But in such a volatile market, you should think carefully before tying-up your money for so long.

More on this…

  • Best rate savings accounts – we help you to track down the best deals in the market
  • Best rate cash Isas – we’ve scoured the market for the best tax-free savings deals
  • Customer satisfaction scores – find out who the most popular savings providers are
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