Inflation fell again this week. This is great news for savers as it means that more accounts now offer an inflation-matching return at the very least.
It’s been a tough few years for savers.
The Bank of England’s base rate has been held at an astonishingly low level for three years now, while prices have risen at a relatively fast rate. In other words, inflation has been very high when compared to interest rates.
As a result, it’s been hard for savers to find accounts that keep up with inflation let alone beat it.
Good news
So I was very pleased to see this week’s news that the Consumer Prices Index measure of inflation had fallen to 2.5% in August, down from 2.6% in July, and 5.2% last September.
That means that a basic rate taxpayer only needs to find an account paying 3.12% to keep up with inflation. Once you’ve paid 20% income tax on 3.12% interest, you’ll end up with a 2.5% return.
Of course, if you go for a Cash ISA, you won’t have to pay any income tax, so an ISA paying 2.5% will do the business for you.
The really good news is that there are now 198 savings accounts that enable basic rate taxpayers to keep up with inflation even after they’ve paid income tax, according to Moneyfacts.
The top accounts
So let’s take a look at the best of those accounts.
Sadly even after the fall in inflation, there are no instant access savings accounts that match inflation after tax, so I’ll start with some one-year fixed rate bonds.
[SPOTLIGHT]If you’re prepared to lock your money away for a year, you could get a 3.35% return if you put your cash in the BLME 1 year Premier Deposit account. That’s assuming you have a spare £25,000 to put in a savings account, as that’s the minimum balance for the account
If you don’t have that kind of money, the Post Office Growth Bond (Issue 18) has a much lower minimum balance at £500 and will pay you 3.25% for a one-year bond.
As ever with savings accounts, you’ll get a better return if you’re willing to lock your money away for two years. Once again, the top-paying bond comes from BLME, but you can also get a great 3.5% rate from United Bank. This account has a £2,000 minimum balance.
Top one- and two-year bonds
|
Provider |
Notice/term |
AER/Gross |
Minimum deposit |
Notes |
|
Two years |
3.75% (Anticipated profit rate) |
£25,000 |
Sharia compliant, hence ‘anticipated profits’ not interest |
|
|
Post Office Growth Bond Issue 18 |
Two years |
3.51% |
£500 |
|
|
Two years |
3.5% |
£2000 |
|
|
|
State Bank of India Hi Return Fixed Deposit |
Two years |
3.5% |
£1000 |
|
|
One year |
3.35% |
£25,000 |
Sharia compliant |
|
|
State Bank of India 1 Year Fixed Deposit Offer |
One year |
3.33% |
£10,000 |
|
|
Post Office Growth Bond Issue 18 |
One year |
3.25% |
£500 |
|
|
Tesco Fixed Rate Saver |
One year |
3.2% |
£2000 |
|
When it comes to longer periods, you can get 4.6% on a five-year bond from BLME, while State Bank of India will pay 4.5% for a five-year bond. The great thing about these rates is that they will give you an inflation-beating return even if you’re a 40% taxpayer.
For 40% taxpayers, the crucial figure is 4.2% interest. Any 40% taxpayer who is receiving interest above 4.2% is beating inflation.
At three years, I suspect the Co-operative Bank Fixed Term Deposit account will be popular with lovemoney.com readers as it offers a nice combination of a trusted high-street brand and a decent 3.62% return.
Top three-, four- and five-year bonds
|
Provider |
Notice/term |
AER/Gross |
Minimum deposit |
Notes |
|
Five years |
4.6% |
£25,000 |
Sharia compliant |
|
|
State Bank of India Hi Return Fixed Deposit |
Five years |
4.5% |
£1000 |
|
|
Four years |
4.2% |
£25,000 |
Sharia compliant |
|
|
Julian Hodge Bank Capital Millennium Bond |
Five years |
4% |
£1000 |
|
|
BLME 3 year Premier Deposit |
Three years |
4% |
£25,000 |
|
|
State Bank of India Hi Return Fixed Deposit |
Three years |
3.85% |
£1000 |
|
|
Britannia 3 year Fixed Rate Bond Issue 47 |
Three years |
3.62% |
£1000 |
|
|
Co-operative Bank Fixed Term Deposit |
Three years |
3.62% |
£1000 |
|
|
Post Office Growth Bond Issue 18 |
Three years |
3.61% |
£500 |
|
|
United 3 Year Fixed Deposit |
Three years |
3.6% |
£2000 |
|
Social savings
Another option is to lend your money via a peer-to-peer website such as RateSetter or Zopa. You may be able to get a return as high as 7.6% from these sites.
Cash ISAs
And then there’s tax-free Cash ISAs. Here's a table with the top accounts.
|
Provider & Account |
Notice/Term |
AER/Gross |
Minimum deposit |
Notes |
|
Halifax ISA Saver Fixed 3 year bond |
Three years |
3.75% |
£500 |
|
|
Santander 2 Year Fixed Rate ISA |
Two years |
3.3% |
£500 |
|
|
Kent Reliance 2 year Tracker ISA Issue 3 |
Two years |
3.3% |
£1000 |
|
|
Britannia Fixed Rate Cash ISA |
Two years |
3.3% |
£5640 |
|
|
Post Office Fixed Rate Cash ISA Issue 8 |
Two years |
3.25% |
£500 |
|
|
Halifax ISA Saver Fixed |
Two years |
3.25% |
£500 |
|
|
Metro Bank 1 Year Fixed Rate Cash ISA |
One year |
3.25% |
£1 |
|
So the good news is your savings can beat inflation if you’re prepared to lock away your money for at least a year.
Let’s just hope that inflation doesn’t start rising again! Then savers will be really fed up…..
More on savings from lovemoney.com:
The best instant access savings accounts