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8 inflation-beating savings accounts for taxpayers

8 inflation-beating savings accounts for taxpayers

Category: Savings

Updated: 01/05/2014
First Published: 27/01/2012

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Finding a savings account that beats inflation is no mean feat at the moment.

To outstrip the rate of CPI inflation (the Consumer Prices Index – currently 4.2%) there are only eight generally available savings accounts – all of which are fixed rate cash ISAs.

If you're a non-taxpayer you have many more options than this – but for the majority eight accounts are not many to choose from.

(Now we should say that this figure of eight doesn't include two 'combination' fixed rate ISAs from the Yorkshire and Barnsley building societies. These pay 5.00% AER but do require you invest a minimum of £5,000 in a Legal & General investment product to qualify.)

8 inflation beating cash ISAs


AER (at £5,340) Details



Governor Money

Bank of Ireland UK - 5 Year Fixed Rate ISA

4.50%
  • Transfers out/withdrawals on closure only and subject to breakage fee
  • Minimum investment: £100
  • 0.50% paid until term starts on 30.1.12



Halifax

ISA Saver Fixed – 5 Years

4.40%
  • ISA transfers in allowed
  • Transfers out/withdrawals on closure only and subject to 365 day loss of interest
  • Minimum investment: £500



Clydesdale Bank

Cash ISA - Fixed Rate Bond (Issue 14)

4.40%
  • ISA transfers in allowed
  • Transfers out/withdrawals subject to up to 180 day loss of interest (min £30)
  • Minimum investment: £2,000



Yorkshire Bank

Cash ISA - Fixed Rate Bond (Issue 14)

4.40%
  • ISA transfers in allowed
  • Transfers out/withdrawals on closure only and subject to up to 180 day loss of interest (min £30)
  • Minimum investment: £2,000



krbs

Flexible Fixed Rate ISA Five Year Issue 1

4.35%
  • ISA transfers in allowed
  • Transfers out/withdrawals subject to 180 day loss of interest
  • Minimum investment: £1,000
  • Monthly interest option also available



Halifax

ISA Saver Fixed – 4 Years

4.30%
  • ISA transfers in allowed
  • Transfers out/withdrawals on closure only and subject to 320 day loss of interest
  • Minimum investment: £500



BM Savings

5 Year Fixed Rate ISA

4.25%
  • ISA transfers in allowed
  • Transfers out/withdrawals subject to up to 365 day loss of interest
  • Minimum investment: £500
  • Monthly interest option also available



Governor Money

Bank of Ireland UK - 4 Year Fixed Rate ISA

4.20%
  • Transfers out/withdrawals on closure only and subject to breakage fee
  • Minimum investment: £100
  • 0.50% paid until term starts on 30.1.12

Information correct as at 27.01.12


2 problems with these inflation-beating ISAs

Although these rates are good, there are two things you should be aware of:

  • Cash ISA limits

You are limited as to the amount you can place in a cash ISA. In the 2011-12 tax year you can only contribute a maximum of £5,340 (and, of course, you can transfer any previously saved funds you have). So your non-cash ISA savings cannot currently beat inflation.

  • Access to your money

The best cash ISA rates are for fixed terms of four or five years. To get an inflation-beating return at present you would have to be prepared to commit your money for a longer term. You can access your cash sooner but you will have to forfeit a certain amount of interest (anything up to a year's worth) for the privilege.

Inflation-linked savings: the smart alternative?

Against the backdrop of high inflation and low interest rates, inflation-linked savings accounts have been enjoying considerable popularity with beleaguered savers.

Epitomising this crop of inflation-linked savings were the National Savings & Investments bonds that have long since been withdrawn. In fact, there are only two inflation-linked accounts still available.

These accounts are not the same as normal savings accounts – they are commonly known as 'structured products'. This means that although your money is 'guaranteed' by the provider to be paid back, if the bank holding your deposit goes bust or can't pay your savings you could potentially come out with less money than you invested.


Rate Details



Legal & General

Inflation Protected Deposit Bond 2 – until 22.3.17

100% of the growth in the Retail Prices Index (RPI)

or

Guaranteed minimum return of 16% (3.01% AER), Plus original investment returned

  • Minimum investment: £500
  • 0.60% paid until term starts on 19.3.12
  • Can be placed in a cash ISA wrapper
  • Deposit taker is RBS
  • If you need access to your money early you could get back less than you originally invested



Post Office®

Inflation Linked Bond Issue 4 – until 28.4.15

100% of the growth in the Retail Prices Index (RPI) plus 0.24% AER

or

Guaranteed minimum return of 0.24% AER

  • Minimum investment: £500
  • 2.50% paid until term starts on 27.4.12
  • Deposit taker is Bank of Ireland (UK)
  • Early closure in exceptional circumstances, subject to breakage fee. If you need access to your money early you could get back less than you originally invested



Post Office®

Inflation Linked Bond Issue 4 – until 28.4.17

100% of the growth in the Retail Prices Index (RPI) plus 0.49% AER

or

Guaranteed minimum return of 0.49% AER

  • Minimum investment: £500
  • 2.50% paid until term starts on 27.4.12
  • Deposit taker is Bank of Ireland (UK)
  • Early closure in exceptional circumstances, subject to breakage fee. If you need access to your money early you could get back less than you originally invested



Santander

Inflation-linked Bond Issue 9 – until 1.9.17

105% of the growth in the Retail Prices Index (RPI)

or

Guaranteed minimum return of 18% (3.06% AER)

Plus original investment returned

  • Minimum investment: £500
  • Can be placed in a cash ISA wrapper (also allows ISA transfers in)
  • Deposit taker is Santander
  • If you need access to your money early you could get back less than you originally invested

Information correct as at 27.01.12


What's the outlook for inflation?

Inflation went up last year as a result of several factors – big energy prices and the VAT increase to name just two. Over the last few months it's been falling back down again. So for the first time in four months it is now at least possible to beat CPI inflation with a high interest cash ISA account.

The inflation outlook is uncertain – events in the Eurozone and the crisis in the Arabian Gulf could conspire to send it back the wrong way. However, the consensus at the Bank of England is that inflation will hopefully retreat back to normal levels (normal being somewhere around the 2% mark).

Next month's figures should again show a drop as the shock effect of last January's VAT increase reaches its one year anniversary (inflation figures show the change in the cost of products and services from a month this year, to the same month last year).

But nothing is certain – although that's the way some experts think it will go, this may not necessarily be the case!

What next?

Compare savings accounts
Compare cash ISAs
Search all savings accounts

More savings tips

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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