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26 Jan 2019

Savings rates are on the rise, as more than 170 accounts now beat inflation

Get the best savings rate to stop your cash losing value

There are currently 172 savings and cash Isa accounts that equal or beat the rate of CPI inflation, which measured 2.1% for December 2018.

This is great news for savers, who have endured years of poor rates - including several months when no cash savings accounts could compete with rising prices.

Which? analysed more than 1,600 accounts, using data from Moneyfacts, and found 79 fixed-term savings accounts with AER interest of 2.1% or above.

We've also uncovered a number of cash Isas and other specialist accounts, like children's savings and Help to Buy Isas, that beat the rate - so you don't have to be restricted to a fixed-term bond to benefit.

Here, we detail how many of each kind of account can beat inflation, along with the top-rate deals in each category.

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Fixed-term savings accounts that can beat inflation

For the past couple of years, savers have been forced to lock their money away for several years in order to bag a CPI-topping rate.

But when inflation peaked at 3.1% in November 2017, no traditional savings accounts could beat it or come anywhere close to matching it. The highest rate being offered by a five-year fixed account was a measly 2.51%.

This was a nightmare for savers, who continued to suffer until inflation dipped to 2.5% in March 2018, when the top-rate five-year savings account could just about beat it with 2.65% AER.

Now, there are 79 fixed-rate savings accounts that pay 2.1% or more, and they're not just restricted to five-year fixes. All of these accounts require a minimum investment of £5,000 or less, and we've stripped out duplicates with slightly different terms, such as account interest being paid monthly and annually.

This is despite the average rate for long-term saving rates being 1.86% this month. While this still falls short of the inflation rate - showing that plenty of accounts will still pay way below - it's up 0.21% since the same time last year.

As the graph below shows, the average rate for long-term fixed-rate accounts and cash Isas haven't beaten inflation since November 2016, but it had been a regular occurrence before that.

As inflation has gradually reduced towards the target 2% mark, so savings account rates have gradually increased - and hopefully they'll continue to do so.

Top-rate short-term savings accounts

This month marks the first time since November 2016 that savers have been able to beat inflation with a one-year fix. Back then, CPI was 1.2% and the highest one-year rate was 1.41%. Several one-year accounts could equal or beat inflation.

Currently, there are just two one-year fixes that top 2.1%:Gatehouse Bank's one-year fixed-rate deposit, with a 2.15% EPR (Expected Profit Rate); and Al Rayan Bank's 12-month fixed-term deposit, with a 2.12% EPR. Both require an initial minimum deposit of £1,000.

Top-rate longer-term savings accounts

The highest rate on offer comes from Bank of London and The Middle East; its seven-year fixed-term deposit expects to pay 2.75% EPR (0.65% more than the rate of inflation).

Its five-year fixed-term deposit is the second-highest rate account, offering 2.7% EPR. Both require a minimum initial deposit of £1,000.

Vanquis bank's five-year fixed-rate bond also offers 2.7% AER, again with a minimum initial deposit of £1,000.

Find out more:how to find the best savings account

Top cash Isa rates

There are nine cash Isas that can match or beat the rate of inflation, but all of them require you to lock your savings away for five years.

The top three accounts for this term include:

  • Coventry Building Society five-year fixed-rate Isa, 2.3% AER
  • Charter Savings Bank five-year fixed-rate Isa, 2.26% AER
  • Leeds Building Society five-year fixed-rate Isa, 2.12 AER

While cash Isa rates still lag behind savings accounts, they do have the benefit of being tax-free.

This means any interest your cash makes won't go towards your personal savings allowance, which varies depending on how much you earn.

However, you do have to stick to your annual Isa allowance; everyone can deposit up to £20,000 in each tax year - either into one cash/stocks and shares/innovative finance Isa, or split between several types of Isas.

Find out more:how to find the best cash Isa

Rewards for regular savings

In addition to the Moneyfacts data, we identified 20 regular savings accounts that pay above the rate of inflation, but many come with very specific caveats and require deposits to be made every month.

The top rates are:

  • First Direct Regular Saver Account, 5% AER
  • M&S Bank Monthly Saver, 5% AER
  • HSBC Regular Saver - preferential rate, 5% AER

Each of these accounts require at least £25 to be paid in each month. You can deposit a maximum of £300 each month with First Direct, and up to £250 with M&S Bank and HSBC.

You'll also need to already hold other accounts with each provider before you're eligible for these regular savers.

First Direct's AER only lasts for 12 months, after which it will plummet to 0.15% AER, so make sure you switch after a year.

The M&S Bank account requires you to keep the account open for at least a year in order to receive the 5% interest. Closing the account early will mean you'll only earn 0.2% AER.

You can only receive the preferential rate with HSBC if you hold an HSBC Premier or HSBC Advance account, both of which require a fairly high minimum deposit each month. The rate will also drop to 0.2% AER if you close the regular saver account within 12 months.

Best rate Junior cash Isas

There are 30 Junior cash Isas offering interest rates of 2.1% AER or above, so saving for your children can really pay off. The top three 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

Note that two of these accounts are restricted by location - Danske Bank account must be opened in-branch, all of which are in Northern Ireland; only customers living in certain postcodes can open an account with Darlington Building Society.

Find out more:best Junior cash Isas

Inflation-beating Help to Buy Isas

Intended to help first-time buyers save for their first home, Help to Buy Isas pay interest on your savings, and when your transaction completes the government pays an additional 25% bonus.

Currently, 22 Help to Buy Isas exceed inflation. The top three rates are:

  • Penrith Building Society, 3% AER
  • Tipton & Coseley Building Society, 2.95% AER
  • Vernon Building Society, 2.85% AER

We've previously written about local building societies offering the top rates for certain accounts, and this is the case for Help to Buy Isas. All accounts here are only open to local residents, so check the terms before you apply.

The highest rate that's available nationwide is Barclays Help to Buy Isa, which offers 2.58% AER - still 0.48% above inflation.

Find out more:Help to Buy Isas explained

Best-rate children's savings accounts

There are 11 children's savings accounts that equal or beat inflation.

The top-paying children's savings accounts are:

  • Nationwide Future Saver, 3.5% AER (existing customers)
  • Melton Mowbray Building Society Wild Ones Young Savers 30-day notice, 3.04% AER
  • Nationwide Future Saver, 2.5% AER

Note that while the Nationwide account is billed as being instant-access, it only permits one withdrawal per year, otherwise the AER will be reduced to 0.5%.

We also identified some additional regular children's savings accounts:

  • Halifax Kids' Monthly Saver, 4.5% AER
  • Saffron Building Society Children's Regular Saver, 4% AER
  • Barclays Children's Regular Saver, 3.5% AER

The ability to open these accounts will also depend on where you live, and each requires a certain amount to be deposited each month, so make sure you can commit to making regular payments before you sign up.

The Barclays account will also drop the rate to 1.51% AER if any withdrawals are made.

Find out more:best children's savings accounts

Why is it important for savings rates to beat inflation?

If your cash is saved in an account that doesn't match or beat the rate of inflation, your money will be losing value in real terms.

Say you save £100 for a year, and in that time inflation measures 2.5%.

Unless your £100 has been in a savings account that's paid enough interest to make it grow by at least 2.5%, you won't be able to buy as much with that money as when you first paid it into your bank.

This is because the goods and services you'll want to spend it on will have increased in price by the rate of inflation. Therefore, your money won't go as far.

Please note that the information above is for information purposes only and does not constitute advice. Please refer to the particular terms and conditions of the savings account provider before committing to any financial products.

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.