Just 124 cash Isas and saving accounts can match or exceed the current rate of inflation this month, making it much trickier for savers to make a return on their cash.
This comes after the Consumer Price Index (CPI) measure of inflation shot up by 0.5% to 1.8% in January 2020 and savings rates continued to dwindle.
When we last looked at how many accounts could match or beat inflation in November 2019 (when inflation measured 1.5%), we found 396 – so there’s been a 69% decrease in inflation-beating options in just three months.
The reduction is also down the fact that Help to Buy Isas closed to new savers on 30 November 2019, and therefore they’re no longer included or available to new savers.
Here, we reveal how many of each type of savings and cash Isa account exceed the current rate of inflation, as well as the top three rates in each category.
Best-rate savings accounts
We analysed Moneyfacts data containing 1,319 savings and cash Isa accounts, and found 124 that offered a rate of 1.8% AER or more. Of these, just 27 are fixed-term savings accounts.
All the accounts are based on savings of £5,000 and all duplicate accounts have been stripped out. For instance, if a provider lists an online and branch account as two different entries.
Short-term fixed accounts
No instant-access accounts exceed the current rate of inflation; the current top-rate account pays 1.31% AER, which is some way from the 1.8% inflation rate.
Therefore, you might want to look to a fixed-term account as rates are generally higher.
You’ll have to go for a term of at least two years to match the inflation rate and these are the only two-year fixed-term accounts to choose from (links will take you through to Which? Money Compare):
- Atom Bank Two-Year Fixed Saver, 1.8% AER
- Bank of London & The Middle East Two-Year Premier Deposit Account, 1.8% EPR (Expected Profit Rate)
You need a minimum of £1,000 to open the Bank of London & The Middle East account, and £50 for Atom Bank.
Bank of London & The Middle East is an Islamic bank and pays an EPR, rather than an annual equivalent rate (AER). This means the bank pays customers a percentage of its profits and, while the rate is not guaranteed, we’ve never heard of an instance in the UK where an Islamic bank has paid less than its advertised EPR.
- Find out more: Islamic finance and Sharia-compliant savings
Longer-term fixed-rate accounts
Typically, the longer you lock up your cash, the higher the rate you’ll get. This is the case at the moment, with the three top-rate accounts requiring you to lock up your cash for five years.
The top-rate accounts are:
- Gatehouse Bank Five-Year Fixed Term Deposit, 2.1% EPR
- Aldermore Five-Year Fixed Rate Account, 2% AER
- Bank of London & The Middle East Five-Year Premier Deposit Account, 2% EPR
You need to save at least £1,000 as the minimum initial deposit for all of these accounts.
- Find out more: how to find the best savings account
Table-topping cash Isas
There are currently no cash Isas that can match the rate of inflation; the highest rate is 1.7% AER, and that’s only offered by one five-year fixed-term account:
The account requires a minimum initial deposit of £500.
While cash Isa rates tend to be lower than savings accounts, they do have the advantage of being tax-free. Any interest earned in an Isa account doesn’t count towards your personal savings allowance and therefore could reduce your tax bill.
- Find out more: how to find the best cash Isa
Best regular savings accounts
Regular savings account rates have seen dramatic cuts over the past few months; where they once offered rates up to 5% AER, this is down to 4% AER – and there are often a lot of caveats to take into account.
That being said, there are still 36 regular savings accounts that offer 1.8% AER or more. The top rates are:
- Saffron Building Society Small Saver, 4% AER requires monthly deposits of £1-£50
- Kent Reliance One-Year Regular Savings Account, 3% AER requires monthly deposits of £1-£500
- Ipswich Building Society Smart Save Monthly, 2.8% AER requires monthly deposits of £10-£500
To open the Saffron Building Society account, you must live in the postcodes CB, CO, CM, SG, RM, IG, EN, AL or SS, and withdrawals are only permitted once a year.
Ipswich Building Society also has location restrictions; only postcodes IP, NR, CO, CM, CB and PE are eligible. To get the advertised AER, you must make a minimum of 11 monthly payments of £10 or more and must not make any more than two withdrawals in the same year.
The Kent Reliance account is available nationwide and you must make an initial deposit of at least £25.
- Find out more: compare regular savings accounts
Cash in on Junior cash Isas
There are currently 36 Junior cash Isas that pay 1.8% AER or more.
In the 2019-20 tax year, you can save up to £4,368 into a Junior cash Isa and all interest earned is tax-free.
The top accounts are:
- Coventry Building Society Junior cash Isa, 3.6% AER
- Danske Bank Junior cash Isa, 3.45% AER
- Darlington Building Society Junior cash Isa, 3.25% AER
You’ll need a minimum initial deposit of £25 to open the Danske Bank account, while the others can be opened with just £1.
Two of these accounts have location restrictions. Danske Bank’s account must be opened in a branch, all of which are in Northern Ireland. Darlington Building Society savers must live in DL, DH, SR, TS, YO or HG postcodes.
- Find out more: best Junior cash Isas
Top-rate children’s savings accounts
There are currently 25 children’s savings accounts that offer 1.8% AER or above.
The top three rates for children’s instant-access accounts are:
- Nationwide Building Society Future Saver, 3% AER
- HSBC My Savings, 3% AER
- Bath Building Society Junior Saver, 2.5% AER
Nationwide only allows one withdrawal per year, or else the interest rate is reduced to 0.5% AER.
The HSBC account only pays 3% AER on the first £3,000 saved – after that, savings receive 0.75% AER; Bath Building Society’s account pays 2.5% on balances up to £20,000.
We also found some regular children’s savings accounts that pay high rates of interest:
- Halifax Kids’ Monthly Saver, 4.5% AER
- Saffron Building Society Children’s Regular Saver, 4% AER
- Barclays Children’s Regular Saver, 3.5% AER
You must deposit between £10 and £100 each month into the Halifax account, while the others accept £5 to £100.
The Halifax account also doesn’t allow withdrawals; you can make withdrawals with the Barclays account, but if you do the interest rate will drop to 1.51% during the month the withdrawal was made.
- Find out more: best children’s savings accounts
Why it’s important for your savings to beat inflation
CPI inflation tracks the prices of an imaginary shopping basket of more than 700 goods and services.
Each month’s inflation figure shows how prices have changed since the same month of the previous year.
As CPI measured 1.8% in January, it means everything in the basket is 1.8% more expensive than it was in January 2019.
Inflation can corrode the value of your savings in real terms if they’re not earning interest that matches or exceeds it. This is because your money simply won’t be able to keep up with the price increases.
The graph below shows how CPI inflation and average long-term savings rates have changed over the past few years, using data from the Office for National Statistics (ONS) and Moneyfacts. Long-term savings rates are categorised by accounts with fixed terms of more than 18 months.
You can browse through hundreds of savings accounts with Which? Money Compare.
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? Money Compare is a trading name of Which? Financial Services Limited.