The latest official inflation figures, released this morning, show that the Consumer Prices Index (CPI) fell to 1.5% in August. A drop of 0.1% from July's figure, it also marks the ninth consecutive month that inflation has remained at or below the Bank of England's 2.00% target.
It's welcome news for savers, as it means there are now an impressive 223 savings accounts that will beat it! In order to counter the effects of tax and inflation, a basic rate taxpayer will need to find an account that pays at least 1.88% per annum (or 2.50% for a higher-rate tax payer) – and there are plenty of them available.
The 223-account total is evenly spread across the ISA and non-ISA market, with 107 non-ISA accounts and 116 cash ISAs offering the necessary rates. It's a clear improvement on last month when a mere 170 accounts had inflation-beating rates – and far better than last year, when inflation stood at 2.7% and only four accounts could beat it – and it means there's now a lot more choice for savers seeking real returns.
However, despite the improvement, there's still plenty of work to be done. Average rates are still miserable – the average interest paid across the ISA range is just 1.53%, while the average easy access account offers a mere 0.67% – and as Sylvia Waycot, editor of Moneyfacts.co.uk, points out: "Inflation may have fallen, but thanks to the paltry interest paid on savings, it is actually making little difference to savers after the taxman has had his share."
So, just what can savers do to get some real returns? Well, locking your money away is always an option. Fixed rate accounts tend to offer the best rates, and if you opt for the tax-free nature of an ISA you won't have to worry about the taxman taking a chunk of your profits either.
But, it could be time to think outside the box, and high-interest current accounts could be a great alternative. Many of these accounts offer in-credit interest rates (often up to 5%) that far outweigh anything that can be achieved with traditional savings accounts, and although there are certain restrictions – some will only offer the headline rate on balances up to a certain amount, and others have a time limit on the high-interest period – they could still be worth considering.
Take Nationwide's FlexDirect account and TSB's Classic Plus, for example. Both offer an impressive interest rate of 5%, and although this is only on balances up to £2,500 and £2,000 respectively, it can't be denied that it could be a great way to supplement your savings balance.
"There is no magic cure for savers," said Ms. Waycot. "We can't make banks want our money, but they do want our current account business, which is why many high interest current accounts are offering very attractive rates on balances – and this is without insisting that you lock your money away for several years.
"It seems quite ludicrous that a current account is offering better rates than any of the 867 savings accounts on the market, but it's true – at 5% interest it can only be matched, not beaten, by just one regular savings account."
So, if you're looking for a way to maximise your returns, it could be time to consider the alternatives. Although there are an impressive 223 savings accounts that will beat inflation you could get far better rates if you looked elsewhere, and it's hoped that savings providers will start to up their game to offer even more choice – and better rates – in the future.
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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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