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The three savings accounts that beat inflation

The three savings accounts that beat inflation

Category: Savings

Updated: 01/05/2014
First Published: 18/05/2011

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 It is now over 6 months old so the content may be out of date.

So, yesterday (17 May 2011) the Office for National Statistics revealed that the Consumer Prices Index (CPI) jumped up to 4.50% in April. That means that in order to beat CPI inflation you now need to earn:

Or, on non-ISA savings…

  • 5.63% if you're a basic rate taxpayer
  • 7.50% if you're a higher rate taxpayer

Cash ISAs to the rescue

There are no standard savings accounts that beat CPI inflation (there are a couple of accounts that are inflation-linked – we'll come to these later on).

In order to beat CPI inflation at 4.50% there are just two, five year fixed rate ISAs that are up to the job:

Birmingham Midshires 5 Year Fixed Rate ISA

  • 5.00% AER
  • Minimum investment of £500
  • ISA transfers in allowed
  • If you withdraw or transfer your money during the five year term you will forfeit some interest
  • This cash ISA can only be managed by post

Northern Rock Cash ISA Issue 161

  • 4.50% AER
  • Minimum investment of £500
  • ISA transfers in allowed
  • If you withdraw or transfer your money during the five year term you will forfeit 180 days' interest
  • This cash ISA can only be managed by post

The problem: you can only place £5,340 in a cash ISA in the 2011-12 tax year

These two cash ISAs are all very well – if you can afford to commit your money for five years and don't mind managing your account by post.

However, there is one key disadvantage: you can only invest money you already have in an ISA and/or up to £5,340 in the 2011-12 tax year.

This begs the question, "what about the rest of my savings?"

NS&I to the rescue

There are a couple of inflation linked savings accounts entering the market, but probably the best-known is the National Savings & Investments Index-linked Savings Certificates…

NS&I Index-linked Savings Certificates

  • Guaranteed to beat the effects of RPI inflation
  • Tax free
  • Invest between £100 and £15,000
  • 5 year term – if you access in the first year you won't earn any interest

Hurry! If you want to take advantage of these savings certificates you need to act fast.

Being government-backed and in order not to stifle competition, NS&I can only take a certain amount of money in this issue – so you can guarantee they won't be around for long!

Find the best savings rates for you - Compare savings accounts

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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