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No cash Isas can beat inflation

Consumer Prices Index rises to 1.6% in December

Woman pulling coins from a purse

Inflation-proof your savings

Inflation rose to its highest level for more than two years in December, marking another difficult month for savers hoping to protect their nest-eggs.

The Consumer Price Index (CPI), which is the standard measure for inflation, rose to 1.6% last month, according to the Office of National Statistics (ONS). This is the highest rate since July 2014 and up from 1.2% in November. 

It’s also the first time since August 2013 that no cash Isa can beat inflation, as you can see in the graph below. 

Here, we suggest the best alternatives to cash Isas to help protect your savings against the effects of inflation. 

For some accounts, we’ve included links to the Which? Money Compare savings and Isa tables, where you can find more details. 

Some savings accounts still beat inflation

Just 7% of the savings accounts on the market can beat or match inflation, according to Moneyfacts data. However, a handful of lesser-known providers have recently increased rates (by a fraction), including Atom Bank, Ikano Bank, Masthaven, and RCI Bank.  

If you’re willing to tie up money, you can earn a top rate of 1.4% AER with the Atom Bank 1 Year Fixed Saver, or 1.6% AER if you fix with Atom Bank for two years.  

The best rate over three years is with Ikano Bank (you can earn 1.75% AER), or you can boost your rate to 1.95% AER if you open the Ikano Bank 4 Year Fixed Saver.  Atom Bank is back at the top of the tables over five years paying 2.05% AER.

Watch out for older savings accounts that now pay next to nothing. For example, HSBC will cut the rate on its Instant Access Savings and Flexible Saver accounts to 0.01% this week. 

If you have a large sum saved, remember the government-backed Financial Services Compensation Scheme (FSCS) covers a maximum of £75,000 (rising to £85,000 from 30 January 2017) per banking group, not each individual account. 

Ikano Bank is a Swedish Bank so your deposits are not covered by the FSCS. Instead, you are covered by the Swedish Deposit Insurance Scheme, managed by Riksgälden, which protects up to £75,000 per person.

Which? Money Compare table: fixed-rate savings accounts – hundreds of deals compared

Current accounts continue to offer eye-catching rates

Current accounts are still your best chance for a decent interest rate, albeit on limited balances. Here are some of the best deals around, although remember to check their Which? customer score, based on customer satisfaction:

  • Nationwide FlexDirect pays 5% AER on balances up to £2,500 in the first year, falling to 1% AER after 12 months. 
  • Santander 123 account pays 1.5% AER on balances up to £20,000, but comes with a £5 monthly fee.
  • TSB Plus account pays 3% on balances up to £1,500 and 5% cashback on your first £100 of spending each month, using your contactless debit card, Apple Pay or Android Pay.

Most current accounts require you to fund the account with a set amount each month, or switch a number of direct debits over, so always check that you can meet any conditions before switching.

Find out more: best bank accounts if you always stay in credit – we round up the best deals 

Is it time to take a bit more risk?

With savings rates poor across the board, you might be willing to think beyond traditional savings accounts. 

For example, you might consider using some of your annual Isa allowance to invest in stocks and shares, or perhaps peer-to-peer lending. We discuss the pros and cons of each option in our guide to investing your cash savings

You don’t pay capital gains tax or income tax with a stocks and shares Isa. You can also transfer money from an existing cash Isa to a stocks and shares Isa without losing the tax benefits, and vice versa.

Investment losses aren’t covered by the FSCS, so your savings are at risk if your investments perform badly. Peer-to-peer lending websites aren’t covered either, so you could lose your money if the platform goes bust. 

Find out more: how investments are protected – an expert guide to the compensation scheme 

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Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.

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