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322 savings accounts now beat inflation

322 savings accounts now beat inflation

Category: Savings

Updated: 14/10/2014
First Published: 14/10/2014

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 It is now over 6 months old so the content may be out of date.

The latest official inflation figures, released this morning, show that the Consumer Prices Index (CPI) fell to 1.2% in September, down 0.3% from August's figure. It's well below the Bank of England's 2.00% target and marks the 10th consecutive month of remaining at or below it, and is also the lowest inflation level seen since September 2009 when it stood at 1.1%.

It's welcome news for savers, as it means there are now a fantastic 322 savings accounts that will beat it! In order to counter the effects of tax and inflation, a basic rate taxpayer will need an account that pays just 1.50% per annum (or 1.90% for a higher-rate tax payer) to secure measurable returns – and there are plenty of them available.

The 322-account total is spread fairly evenly across the ISA and non-ISA market, with 170 non-ISA accounts and 152 cash ISAs offering the necessary rates. It's an improvement of almost 100 accounts on last month when there were 223 that had inflation-beating rates, and compared with last year, it's seriously impressive. In October 2013 inflation stood at 2.7% and a basic rate taxpayer needed an account paying 3.38% in order to counter its effects – something that only nine accounts could do.

It means there's now a lot more choice for savers seeking real returns, but despite this improvement, it's not all good news. Average rates still aren't setting the world on fire, with the average interest paid across the ISA range being just 1.56% (down from 1.70% a year ago), and although this will beat inflation, it won't give you much back.

Sylvia Waycot, editor of Moneyfacts.co.uk, said: "Despite this being the first time in two years that an easy access or notice account beats inflation, the savings market remains in a dire state with the fall in inflation actually making little difference to savers.

"Even with the new £15,000 ISA limit, savers' funds are just not wanted by providers. Five years ago, savers could get 3.75% in a no notice account, but today they would need to invest for a staggering seven years to get 3.52%. What savers want is the return of real competition in the savings market and some realistic deals on offer."

It can't be denied that the market is lacklustre at present, with a clear lack of competition in the sector meaning providers just aren't increasing their rates. However, there are still some options to consider – and with inflation being so low, you can now secure an inflation-beating rate with an easy access account. BM Savings currently takes the top spot in this sector, with an internet-operated account that pays a rate of 1.60%.

But, if you want even better returns then fixed rate accounts will still be your best bet, 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. Alternatively, what about high interest current accounts?

Many offer in-credit interest rates (Nationwide and TSB have accounts that pay up to 5%) that far outweigh anything that can be achieved with traditional savings accounts, and they'll more than cover the effects of tax and inflation. Although there are certain restrictions, such as only paying the headline rate on balances up to a certain amount, they could still be worth considering.

So, if you're looking for a way to maximise your returns, you've got more choice than you've had in years. It's a great time to consider your options – and perhaps even think outside the box – but ultimately, it's hoped that providers will start to up their game to offer rates that really are enticing.

What next?

Look at some of our best savings deals

Compare the best cash ISA rates

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.