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Does your savings account beat inflation?

CPI drops to record low of 0.5% in January

white piggy bank with coin

UK inflation fell to a record low of 0.5% in January, making it easier for savers to find a cash Isa or savings account to beat rising prices.

The consumer prices index (CPI), which is the standard measure for inflation over the last 12 months, has only been this low once before (in May 2000), according to the Office for National Statistics (ONS).

This unexpectedly steep drop will trigger a letter of explanation from Bank of England governor Mark Carney, because it’s more than 1% below the BoE’s 2% target. 

It also means that a far larger proportion of savings accounts are now offering inflation-busting rates. 

99% of cash Isas can beat inflation

As all interest earned within a cash Isa is free from tax, you just need one that matches the headline inflation rate for your savings to beat rising prices. 

Our research shows that 208 out of the 211 cash Isas on the market currently boast a rate higher than 0.5%. If you’ve got cash stored in any of the three instant-access cash Isas that pay less than this, it might be worth considering a switch.  

The Which? Money Compare tables let you search hundreds of Isas and savings accounts, from providers large and small, to find a great account based on quality of service as well as cost and benefit.  

Which? Money Compare Table: Cash Isas – hundreds of deals compared

Poor rates on instant-access savings accounts  

With inflation at this record low, a basic-rate taxpayer would need to find a savings account paying just 0.63% to beat CPI, but our research suggests that just 129 out of 290 instant-access accounts on the market can beat this inflation-busting rate. Only 95 of these offer more than the 0.83% needed for higher-rate taxpayers to beat inflation. 

You’re far more likely to beat these rates if you’re willing to tie your money up for at least a year though. There are currently just three fixed-rate savings accounts offering rates that won’t beat inflation if you’re a basic rate taxpayer – and only five that won’t offer inflation-busting rates to higher-rate taxpayers. 

Which? Money Compare Table: Savings accounts – hundreds of deals compared

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