Where to find inflation-beating savings rates
The number of savings accounts that beat inflation has markedly improved. But they are not the only option for keeping your cash ahead of rising prices.
This week’s fall in the annual rate of inflation to 2.1% in November was slightly better news for people relying on cash in savings accounts and ISAs to provide them with an income.
It means if you’re a basic rate (20%) taxpayer there are now 48 savings accounts beating inflation, according to financial data analysts Moneyfacts.
To work out exactly how much your money has changed in the past five years, allowing for average interest and tax at 20% £10,000 would not be worth £8,839, a 11.61% fall.
Of course, your own inflation may be higher or lower than the official measure. But with any increase in the Bank of England’s base rate still looking at least a couple of years away, downward inflation is a good next best thing for savers.
Here are the top accounts that beat inflation for different taxpayers.
Basic-rate taxpayers
A basic rate-taxpayer needs an account with a gross (before tax) interest rate of at least 2.63% to beat inflation.
Here are the top accounts. You’ll notice we’ve included several current accounts, as these are paying above-inflation rates.
| Account | Type | Gross interest rate | Net interest rate for basic rate taxpayer | Minimum deposit | Maximum deposit | Access |
| Nationwide FlexDirect | Current account | 5.00% (one year only) | 4.00% | £1 | £2,500 (maximum amount interest rate is paid on) | Unlimited |
| Clydesdale Bank Current Account Direct | Current account | 4.00% (until January 2015) | 3.20% | £1 | £3,000 (maximum amount interest rate is paid on) | Unlimited |
| Yorkshire Bank Current Account Direct | Current account | 4.00% (until January 2015) | 3.20% | £1 | £3,000 (maximum amount interest rate is paid on) | Unlimited |
| Secure Trust Bank Fixed Rate Bond | Seven-year fixed rate bond | 3.52% (until October 2020) | 2.82% | £1,000 | £1,000,000 | None for seven years |
| Skipton BS Online Limited Edition Bond | Seven-year fixed rate bond | 3.50% (until January 2021) | 2.80% | £500 | £10,000 | None for seven years |
| FirstSave Seven-Year Fixed Rate Bond | Seven-year fixed rate bond | 3.50% | 2.80% | £1,000 | £2,000,000 | None for seven years |
| Secure Trust Bank Fixed Rate Bond | Five-year fixed rate bond | 3.21% | 2.57% | £1,000 | £1,000,000 | None for five years |
| Vanquis Bank High Yield | Five-year fixed rate bond | 3.16% | 2.55% | £1,000 | £250,000 | None for five years |
| Aldermore Five-Year Fixed Rate Bond | Five-year fixed rate bond | 3.15% | 2.52% | £1,000 | £1,000,000 | None for five years |
| Shawbrook Bank Five-Year Bond (Issue 11) | Five-year fixed rate bond | 3.20% | 2.56% | £5,000 | £2,000,000 | None for five years |
| FirstSave Five-Year Fixed Rate Bond | Five-year fixed rate bond | 3.15% | 2.52% | £1,000 | £2,000,000 | None for five years |
| Tesco Bank Fixed Rate Saver | Five-year fixed rate bond | 3.05% | 2.44% | £2,000 | £5,000,000 | None for five years |
| Santander 123 account | Current account | 3.00% | 2.40% | £3,000 | £20,000 (maximum amount interest rate is paid on) | Unlimited |
| Bank of Scotland Classic Account with Vantage | Current account | 3.00% | 2.40% | £3,000 | £5,000 (maximum amount interest rate is paid on) | Unlimited |
| Lloyds Bank Classic Account with Vantage | Current account | 3.00% | 2.40% | £3,000 | £5,000 (maximum amount interest rate is paid on) | Unlimited |
| TSB Classic Account with Enhance | Current account | 3.00% | 2.40% | £3,000 | £5,000 (maximum amount interest rate is paid on) | Unlimited |
| Virgin Money Fixed Rate E-Bond | Five-year fixed rate bond | 3.00% | 2.40% | £1 | £1,000,000 | None for five years |
| Skipton BS Five-Year E-Bond | Five-year fixed rate bond | 3.00% | 2.40% | £500 | £1,000,000 | None for five years |
| Vanquis Bank High Yield | Four-year fixed rate bond | 2.70% | 2.16% | £1,000 | £250,000 | None for four years |
| Shawbrook Bank Four-Year Fixed Rate Bond | Four-year fixed rate bond | 2.85% | 2.28% | £5,000 | £2,000,000 | None for four years |
While the current accounts look very tempting, you should be aware that they come with a few hoops to jump through. In the case of the Nationwide FlexDirect account, to earn the 5% interest you need to pay in at least £1,000 a month into the account.
The same goes for Clydesdale and Yorkshire Banks' Current Account Direct.
With Santander's 123 account you need to pay in £500 a month, and set up at least two Direct Debits. There's also a £2 a month fee on the account.
And Bank of Scotland's Classic Account with Vantage, Lloyds Bank's Classic Account with Vantage and TSB's Classic Account with Enhance each pay 3% on balances of between £3,000 and £5,000 so long as you pay in £1,000 a month. You can have up to three of each account too.
Ultimately, to beat inflation you're either looking at a current account or locking your money away for a minimum of four years. The latter is a risk in terms of rates rising well before the end of that period.
Compare high-interest current accounts
Higher-rate taxpayers
If you're a higher-rate (40%) taxpayer, you're looking at an account with a gross interest rate of at least 3.5%, which leaves you with three current accounts and three regular savings accounts.
|
Account |
Type |
Gross interest rate |
Net interest rate for basic rate taxpayer |
Net interest rate for higher rate taxpayer |
Minimum deposit |
Maximum deposit |
Access |
| Nationwide FlexDirect | Current account | 5.00% (one year only) | 4.00% | 3.00% | £1 | £2,500 (maximum amount interest rate is paid on) | Unlimited |
| Clydesdale Bank Current Account Direct | Current account | 4.00% (until January 2015) | 3.20% | 2.40% | £1 | £3,000 (maximum amount interest rate is paid on) | Unlimited |
| Yorkshire Bank Current Account Direct | Current account | 4.00% (until January 2015) | 3.20% | 2.40% | £1 | £3,000 (maximum amount interest rate is paid on) | Unlimited |
| Secure Trust Bank Fixed Rate Bond | Seven-year fixed rate bond | 3.52% (until October 2020) | 2.82% | 2.12% | £1,000 | £1,000,000 | None for seven years |
| Skipton BS Online Limited Edition Bond | Seven-year fixed rate bond | 3.50% (until January 2021) | 2.80% | 2.10% | £500 | £10,000 | None for seven years |
| FirstSave Seven-Year Fixed Rate Bond | Seven-year fixed rate bond | 3.50% | 2.80% | 2.10% | £1,000 | £2,000,000 | None for seven years |
Don't forget Cash ISAs
As they're tax free, any Cash ISA paying over 2.1% beats inflation. If you haven't used your allowance for this year and you're happy to tie your money up for at least three years, you should probably look here first.
Here are the top Cash ISAs that beat inflation right now.
|
Account |
Interest rate (AER) |
Minimum deposit |
Length of fixed rate |
Notes |
| Virgin Money Five-Year Fixed Rate Cash E-ISA | 3.00% | £1 | Five years (fixed until 24th November 2018) | Transfers and new subscriptions. |
| Skipton BS Online Five-Year Fixed Rate ISA | 3.00% | £500 | Five years (fixed until 17th November 2018) | Transfers and new subscriptions. |
| Principality BS Five-Year Fixed Rate Cash ISA | 3.05%% | £500 | Five years | Transfers and new subscriptions. |
| Newcastle BS Fixed Rate Options ISA | 2.90% | £500 | Five years (fixed until 23rd October 2018) | Transfers and new subscriptions. |
| Coventry BS Fixed Rate ISA | 2.75% | £5,760 | Four years (fixed until 31st May 2017) | New subscriptions only. |
| Virgin Money Three-Year Fixed Rate Cash E-ISA | 2.40% | £1 | Three years (fixed until 24th November 2016) | Transfers and new subscriptions. |
| Bank of Scotland Fixed Cash ISA | 2.40% | £500 | Three years | Transfers and new subscriptions. |
Another option
If you're happy to take on a bit more risk, then you should take a look at peer-to-peer savings accounts. These are operated by companies acting as middlemen to allow you to lend money to other people and/or small businesses, depending on the company involved.
Companies such as RateSetter, FundingCircle and Zopa are offering rates above 5% if you're prepared to lend your money out for five years.
Compare peer-to-peer savings rates
More on savings:
Top Cash ISAs for transfers
Leeds BS withdraws 10-year market-leading savings account
The best fixed-rate savings accounts
New 'secure' bond paying 6.5% interest a year
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