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CPI inflation remains at 3%: which savings accounts can beat it?

Which? looks at how to protect your savings against persistently high inflation.

CPI inflation remains at 3%: which savings accounts can beat it?

UK inflation as measured by the Consumer Prices Index (CPI) remained flat at 3% in October, according to official figures.

The Office for National Statistics (ONS) says the rising price of food and recreational activities were the main factors keeping inflation high, but these were offset by a drop in transport and furniture prices compared to the month before.

Although inflation hasn’t changed since September, it’s still the highest level seen since April 2012 and that’s bad news for savers.


How inflation impacts savings

Inflation measures the rising costs of everyday essentials.

If your money doesn’t keep up with the pace of change it will lose value in real terms over time.

So savers stashing cash away for the future need to make sure they can beat inflation to stop their money losing purchasing power.

To beat inflation, most savers that haven’t used up their personal savings allowance still need to find an account that pays 3% or more.

Can any savings accounts beat inflation now?

Despite the base rate rising for the first time in a decade earlier this month, providers have been slow to pass the boost on to savers.

Currently no traditional savings account or cash Isa can beat inflation as the table below setting out the top deals for each category shows.

What the best deal pays
Five-year fixed-rate bond 2.46%
Three-year fixed rate bond 2.25%
Five-year fixed-rate cash Isa 2.15%
Two-year fixed-rate bond 2.05%
Three-year fixed-rate cash Isa 2.00%
One-year fixed-rate bond 1.95%
Two-year fixed-rate cash Isa 1.72%
One-year fixed-rate cash Isa 1.36%
Easy access account 1.31%
Easy access cash Isa 1.07%

Source: Which? Money Compare

Some regular savings accounts pay decent levels of interest.

First Direct, HSBC,  M&S Bank, Nationwide and Santander offer deals paying 5% AER. However, these are exclusively available for current account customers, require you to save monthly and cap the amount you can put in.

So as you are drip feeding money into these accounts your actual return on your investment is just over half of what it would be if you had deposited a lump sum.

With the Nationwide Flexclusive Regular Saver 2, for example, saving the maximum contribution of £250 a month would get you £3,000 in a year. However, you’ll only get £81.25 in interest, which amounts to an overall 2.7% return on the pot rather than the 5% advertised.

That’s still better than the top rate you can get from a five-year fixed-rate bond, but it’s still not quite inflation-beating

So where else can savers look to protect cash from inflation?

Current accounts can still help savers

There are a handful of current accounts that pay an inflation-busting rate on balances as long as you are prepared to jump through some hoops.

The Nationwide FlexDirect account offers a 5% return on balances up to £2,500 for 12 months. You just need to be able to fund the account with £1,000 a month to qualify for the rate.

With the Tesco Bank Current Account you can earn 3% on balances up to £3,000 until April 2019 as long as you deposit £750 a month and have three direct debits set up.

While the TSB Classic Plus pays a competitive 3% on balances up to £1,500 – you just need to deposit £500 a month and sign up for internet banking and paperless correspondence.

How to get a better return on your money

Investing your money could help your savings beat inflation over the long term.

Just remember that the value of your investment could go down as well as up, so you’ll need to be comfortable taking a risk with your savings.

Take a look at our beginner’s guide to investing for more.

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.

Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.

Categories: Money, Savings & Isas

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