Where to find inflation-beating savings rates


Updated on 17 December 2013 | 2 Comments

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.

[SPOTLIGHT]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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