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29 Nov 2019

Nearly 400 savings accounts match or beat this month's inflation rate

Discover the best accounts for your savings

Savers keen to protect the value of their money will now find it much easier as 396 savings and cash Isa accounts can match or exceed the current rate of inflation -a jump of 22% in two months.

Rather than a resurgence in savings interest rates, the increase is mainly due to the continued fall in CPI inflation. It measured 1.5% in October, according to the latest report from the Office for National Statistics (ONS), which is the lowest level for nearly three years.

Here, we reveal how many of each type of savings and cash Isa account exceeds the current rate of inflation, as well as the top three rates in each category.

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The best-rate savings accounts

We analysed Moneyfacts data containing 1,375 savings and cash Isa accounts and found 396 that offered a rate of 1.5% AER or more. Of these, 158 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.

The top short-term accounts

No instant-access accounts exceed the current rate of inflation, although the top-rate accounts pay 1.45% AER, just 0.05% short.

Therefore, you might want to consider locking your money away in a fixed-term account. There are 29 one-year fixed-term savings accounts that pay 1.5% AER or more, and we've listed the top below.

  • Bank of London & The Middle East 1 Year Premier Deposit Account, 1.9% EPR (Expected Profit Rate)
  • Metro Bank Fixed Term Savings 1 year, 1.8% AER

You need a minimum of £1,000 for the Bank of London & The Middle East account, and £500 for Metro Bank.

Bank of London & The Middle East is an Islamic bank, and pays an Expected Profit Rate (EPR) rather than a rate of interest in order to be Sharia-compliant. This means the bank pays customers a percentage of its profits, and while the rate is not guaranteed, we've never heard of instances where Islamic banks have paid less than the advertised EPR in the UK.

Best rates for long-term savings

It generally follows that the longer you lock up your cash, the higher interest rate you'll get. But that's not always the case.

If you're prepared to commit to a term of more than one year, the top-paying accounts are:

  • United Bank UK 5 Year Fixed Term Deposit, 2.36% AER
  • United Bank UK 3 Year Fixed Term Deposit, 2.2% AER
  • Bank of London & The Middle East 3 Year Premier Deposit Account, 2.2% EPR

Two of the best-rate accounts only require you to commit to a three-year fixed-term, exceeding all rates offered on four-year terms, and the majority of five-year terms.

You'll need a minimum of £2,000 to open the United Bank UK accounts, or £1,000 to open an account with Bank of London & The Middle East.

Can you cash in with cash Isas?

We found 55 cash Isas that exceed the current CPI rate of inflation, with a minimum fixed term of one year, but there's only one one-year option.

To earn the top rates, you'll need to put your money away for five years.

The three highest-rate cash Isa accounts are:

  • United Bank UK 5 Year Fixed Rate Cash Isa, 2.01% AER
  • Metro Bank 5 Year Fixed Rate Cash Isa, 1.85% AER
  • Paragon Bank 5 Year Fixed Rate Cash Isa, 1.8% AER

These accounts should suit most budgets. United Bank UK again requires a minimum initial deposit of £2,000, but you'll only need £1 to open the Metro Bank account, or £500 to start saving with Paragon Bank.

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 allowanceand therefore could reduce your tax bill.

The top regular savings accounts

Regular savings accounts have been in the news for all the wrong reasons recently, as the three accounts offering the top rate of 5% AER have all been dramatically reduced.

However, we still found 47 regular savers that beat the current rate of inflation.

The top three regular saver rates are:

  • Kent Reliance 1 Year Regular Savings Account, 3% AER (requires monthly deposits of £1 to £500)
  • Saffron Building Society 12 Month Fixed Rate Regular Saver, 3% AER (requires monthly deposits of £10 to £250)
  • Ipswich Building Society Smart Save Monthly, 2.9% (requires monthly deposits of £10 to £500)

To open the Kent Reliance account, you'll need a deposit of £25. If you breach the maximum deposit limit or fail to make regular monthly deposits, your account may be transferred to an easy access savings account, which pays 1.3% AER. This transfer will also happen at the end of the 12-month term.

You'll need at least £10 to open an account with Saffron Building Society. Withdrawals are permitted, but if the account balance falls below £10, the AER will drop to 0.05%.

After 12 months, the account will be switched to a Maturity Easy Access account, paying 0.25% AER. While anyone can open this account, it must be done in-branch, all of which are in the east of England.

There are location restrictions to save with Ipswich Building Society: only those living in IP, NR, CO, CM, CB and PE postcodes can apply. You're permitted two withdrawals a year and must make at least 11 monthly payments of £10 or more to receive 2.50% AER. Failing to do either of these means the AER will fall to 0.4%.

The best Help to Buy Isas

Help to Buy Isas are closing to new savers on 30 November 2019, but ahead of that we found 24 that currently pay 1.5% or more.

Help to Buy Isas are savings accounts specifically for first-time buyers trying to save for their first home.

In addition to AER interest, the government pays a 25% bonus on whatever you save, with a maximum £3,000 bonus being paid when you save £12,000.

The top three Help to Buy Isa rates are:

  • Penrith Building Society Help to Buy Isa, 3% AER
  • Vernon Building Society Help to Buy Isa, 2.85% AER
  • Darlington Building Society Help to Buy Isa, 2.8% AER

There are regional restrictions on all of these accounts. You must have a Cumbria postcode to bank with Penrith Building Society; Vernon Building Society customers must live within 25 miles of Stockport; Darlington Building Society specifies that you must have a local postcode of DL, DH, SR, TS, YO or HG.

High-interest Junior cash Isas

There are 38 Junior cash Isas that pay a higher rate of interest than the current rate of inflation.

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 Junior cash Isa 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-branch, all of which are in Northern Ireland. And, as mentioned above, 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

Children's savings accounts may be the next to be hit with rate cuts.

Analysis from Moneyfacts suggests that while the market has not yet seen many cuts, it also hasn't benefited from the Bank of England base rate increases over the past two years. Therefore, any cuts made would put rates back even further than some other types of savings.

For now, there are 54 children's savings accounts that beat the October rate of inflation.

The top three easy-access children savings account rates are:

  • Nationwide Future Saver (existing customers), 3% AER
  • HSBC MySavings, 3% AER
  • Virgin Money Young Saver, 2.25% AER

The Nationwide account is limited to one withdrawal a year. If you take money out more frequently, the rate will drop to 0.5% AER.

We also found some regular children's savings accounts that pay high 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 have to deposit between £10 and £100 each month into the Halifax account, while the others accept £5 to £100.

No withdrawals are allowed from the Halifax account, whereas the rate will drop to 1.51% in any month a withdrawal is made from Barclays.

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 full of more than 700 goods and services.

Each month's inflation figure shows how prices have changed since the same month the previous year.

So, as CPI measured 1.5% in October, it means everything in the basket is 1.5% more expensive than in October 2018.

The rate of inflation can corrode the value of your savings if it's higher than the interest you're earning. This is because your money won't be able to keep up with price increases.

October 2019 is the first time in three years that both average long-term savings rates and cash Isa rates were roughly equal to or exceeding inflation.

The graph below shows how CPI inflation and average savings rates have changed over the past few years, using data from the ONS and Moneyfacts.

If your savings aren't growing by at least the same rate as inflation, your money's value will shrink as it won't be able to buy you as much.

Therefore, it's worth seeking out savings accounts that offer competitive interest rates.

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.