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Inflation leaps to 2.7% – and no savings accounts can beat it

Find out how to get an inflation-busting return on your money

Inflation has climbed to its highest level since July 2013, spelling more bad news for savers as analysis reveals not a single savings account paying a rate big enough to beat soaring prices. 

Higher airfares and a later-than-usual Easter weekend contributed to a jump in the consumer price index (CPI), which stood at 2.3% last month.

Data provider Moneyfacts has revealed that no savings accounts or cash Isas available to all customers in the UK can beat 2.7% – leaving many losing money in real terms by storing it in a traditional savings account.

Find out more: Inflation risk explained – how inflation eats into your savings

Why has inflation risen again?

In addition to increases in travel prices, higher costs for clothing, electricity and car taxes also contributed to the rise in CPI. But the impact could have been even worse, had it not been for a decrease in petrol prices.

Inflation has steadily risen since the EU referendum in June last year. As the chart below shows, CPI has soared from 0.3%% in 2016 to 2.7% today.

Are there any savings accounts that beat inflation?

Every week, Which? rounds up the latest savings accounts to beat rising prices. Of the accounts and cash Isas openly available to all customers (meaning those which don’t require you to have a certain level of savings, put limits on how much you can save or require you to have another product with a financial institution to qualify for the account), none currently pay more than 2.7%.

Even locking up your money for the longest term won’t secure you an inflation-busting rate.

  • Best 5-year savings account – 2.25% from Paragon Bank
  • Best 5-year cash Isa – 1.75% from Virgin Money

However, there are a number of regular savings accounts that pay more than inflation. M&S Bank, First Direct, HSBC, Nationwide and Santander all offer interest of 5% – but you need to be a current account customer to access them.

These accounts also limit savings to between £200 and £500 per month.

There are also two regular savings accounts, open to everyone, that offer rates above 2.7%.

  • Saffron Building Society pays 3.5% and allows you to save £200 per month (£2,400 a year)
  • Kent Reliance pays 3% and allows you to save £500 per month (£6,000 a year).

What else can savers do to beat inflation?

High-interest bank accounts

Many bank accounts now pay interest outstripping inflation on money held in an account – although these come with restrictions and caps. Nationwide pays 5% in the first year, up to balances of £2,500, while TSB, Bank of Scotland and Tesco Bank pay 3%.

See our credit interest comparison to see who tops the tables.

The stock market

Historically, the stock market has delivered higher returns over the long-term than cash savings. With savings rates still in the doldrums thanks to the ultra-low Bank of England base rate, you may want to consider investing.

The key here is time – you need to be comfortable not touching your money for at least five years. Read our guide to getting started as an investor.

Peer-to-peer lending

Under this scheme, you lend your savings to people or companies who want to borrow, which often pays higher rates of interest than traditional savings accounts. There are risks – people may not repay their loans, and you could lose out. But peer-to-peer lending is growing in popularity, and now some lenders are offering tax-free Isas.

Find out more in our guide to peer-to-peer lending.

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