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365 savings accounts now beat inflation

365 savings accounts now beat inflation

Category: Savings

Updated: 16/12/2014
First Published: 16/12/2014

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 It is now over 6 months old so the content may be out of date.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 a 12-year low of 1% in November. Down 0.3% from October's figure of 1.3%, it's the lowest inflation rate seen since September 2002 and marks the 12th consecutive month of remaining at or below the Bank of England's 2.00% target.

Despite it being such a significant drop, it was largely anticipated. In November's Inflation Report, the Governor of the Bank of England warned that it was likely inflation would fall below 1% in the next six months, and it appears to be heading on that trajectory.

However, the rate of inflation is good news for savers, as it means there are now 365 savings accounts that will beat it! It's a fantastic increase of 98 from last month when 267 could do the same, and means there's now plenty of choice for savers seeking inflation-beating returns.

In order to counter the effects of tax and inflation, a basic rate taxpayer will need an account that pays just 1.25% per annum (or 1.67% for a higher-rate taxpayer) to secure measurable returns. In other words, find an account that pays above this level and you won't see the value of your money eroded – and there are a lot of them to choose from.

The 365-account total is spread across both the ISA and non-ISA market, with 210 non-ISA accounts (176 fixed bonds, 19 notice and 15 no notice accounts) and 155 cash ISAs offering the necessary rates. This is a dramatic improvement of 317 accounts on this time last year, when inflation stood at 2.1% and a basic rate taxpayer needed an account paying 2.63% to counter its effects – something that only 48 could do.

However, despite the improvement, it's not all good news. It may be a lot easier for savers to preserve the value of their savings, but that doesn't mean they'll be getting exceptional returns – after all, 1.25% is still fairly dismal, and with the majority of average rates still falling (the average interest paid across the ISA range is just 1.45%, even less than a year ago when it stood at 1.65%), it won't be that much of a Merry Christmas for savers seeking a juicy profit.

"The rate of inflation may have fallen but it is still going to be a 'Bah humbug' Christmas for savers thanks to the paltry interest paid on savings," said Sylvia Waycot, editor of Moneyfacts.co.uk. "Many older savers will be dreaming of the new Pensioner Bond, but I doubt there will be enough to go round and fear it will cause even more heartache for those who miss out. The rest of us have a total of 365 savings accounts to choose from that pay enough interest to negate the effects of tax and inflation."

That's not to say there aren't some good deals to be found, of course. The fact that inflation has fallen so low means even an easy access account can offer the rates necessary to secure inflation-beating returns, and if you're willing to tie your money up in a fixed rate bond, you could get even more. Alternatively, if you're lucky enough to qualify for the forthcoming Pensioner Bond, keep your money liquid so you can plough it straight into the accounts – with returns of up to 4% being offered, you can't go wrong!

The rates for the rest of us may not set the world on fire, but at least the value of your money will be maintained. After all, the effect of inflation means that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £8,745 today (a drop of 12.55%), so anything you can do to beat inflation will be welcome.

However, in the long-term, it's hoped that the industry will step up and offer the higher rates that savers are craving. Ms. Waycot concludes: "Inflation has hit a 12-year low which has made a difference to the number of accounts that can beat tax and inflation, but for any real difference to be felt, savers – especially those reliant on savings income to fund retirement – are still desperate for an overall improvement on the savings rates offered."

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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.