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558 savings accounts now beat inflation

558 savings accounts now beat inflation

Category: Savings

Updated: 20/02/2015
First Published: 17/02/2015

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 It is now over 6 months old so the content may be out of date.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 0.3% in January, down from December's rate of 0.5% and the lowest inflation rate ever recorded. It marks the 14th consecutive month of remaining at or below the Bank of England's 2.00% target, and means the possibility of inflation falling into negative territory is edging closer.

Governor of the Bank of England Mark Carney has already had to write to the Chancellor to explain why inflation has fallen to such low levels and how it can be rectified, while the latest Inflation Report warned that it could turn negative within the next few months. The large drop in fuel and food prices are thought to be the catalysts behind this latest fall, with a 'supermarket price war' pushing prices down.

It may not be the best new for economists, but it's great news for shoppers – and even better news for savers! The latest drop means there are now 558 savings accounts that will counter the combined effects of tax and inflation, an increase of 48 from last month when 510 could do the same. It means there's now even more choice for savers seeking inflation-beating profit, and you don't even need a high-paying account to secure the necessary returns.

Moneyfacts' calculations show that, in order to counter the effects of tax and inflation, a basic rate taxpayer will need an account that pays just 0.38% per annum (or 0.50% for a higher-rate taxpayer) to secure measurable returns – find an account that pays above this level, and you'll genuinely be left with more money in your account.

The 558-account total is spread across the market, with 371 non-ISA accounts (218 fixed bonds, 55 notice and 98 no notice accounts) and 187 cash ISAs – almost all of the 213 available – offering the necessary rates. Things have improved dramatically in the last year, too: last February, inflation stood at 1.9%, which meant a basic rate taxpayer needed an account paying 2.38% just to counter the effects. Only 84 accounts could hit the mark, but now, you've got 474 more to choose from!

However, despite the clear rise in the number of inflation-beating products – not to mention the measurable improvement in consumers' purchasing power – it's not all good news. It may now be easier for savers to preserve the value of their savings pot, but the long-term effects of inflation mean that £10,000 invested five years ago would have the spending power of just £8,769 today, a drop of 12.31%, and let's not forget that average rates are still pitifully low.

The average interest paid on easy access accounts is just 0.66%, and even though it's inflation-beating, it won't exactly generate much interest. In fact, to put it into context, it wouldn't even buy you a sausage a week – Moneyfacts' calculations show that £5,000 saved in an average easy access account would generate just £26.40 in interest per year after tax, or approximately 51p per week. But, if you wanted to buy just one sausage each week, based on a pack of six costing £3.49, you'd need 58p per week in interest just to cover it (or £30.16 in the year).

Sylvia Waycot, editor at Moneyfacts.co.uk, commented: "It's official: after tax and inflation, the average interest paid on easy access savings accounts isn't even enough to buy you one sausage a week. The average interest paid on easy access accounts is just 0.66%, while across the ISA range it's still miserable at 1.44%, even less than last year when it was 1.65%.

"Inflation has hit a new low, and although this helps today's savings interest go further, it still won't get you a sausage."

So, even though a lot more accounts pay inflation-beating rates, it doesn't necessarily mean you'll be left with a substantial return. Unless, of course, you do your research. There are plenty of accounts paying well above the 0.38% needed to secure real returns, particularly if you're willing to tie up your cash in fixed rate bonds or want to make the most of your ISA allowance, and even high interest current accounts could be a viable alternative. So, don't settle for poor returns – find an account that pays more, and you could find you're able to afford more than a sausage…!

What next?

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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.