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Five minute finance: Inflation busting accounts

Five minute finance: Inflation busting accounts

Category: Savings

Updated: 25/05/2010
First Published: 24/05/2010

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 It is now over 6 months old so the content may be out of date.

Inflation figures out last week showed another sharp rise, with the Consumer Price Index (CPI) rising to 3.7% – nearly double the Governments target of 2.00%. The news is another bitter blow for savers, many of whom feel that their needs have been neglected during the financial crisis.

The rise in CPI means that a basic rate taxpayer needs to find an account paying at least 4.63% to break even, a rate that is available on just 20 accounts on the market. Higher rate taxpayers need to achieve a rate of 6.17%, while those on the top rate of tax need to earn 7.40% – a level that is only achievable on just one account on the market.

The handful of accounts that do beat the effects of tax and inflation are likely to hold little of appeal to the majority of savers. Most are regular savings accounts, requiring savers to open or hold the providers fee paying current account. Alternatively savers can opt for a fixed rate bond, but they will need to open a riskier investment product at the same time or commit funds for five years.

Market leading bond

Coventry Building Society has launched a market leading 5 Year Fixed Rate Bond paying 5.00%. Savers can invest up to £250,000 into the bond, with further additions permitted whilst the bond remains open. A monthly interest option is available for those after a regular income. Savers can access funds during the term of the bond, which matures on 31st August 2015, but all withdrawals will be subject to a loss of 180 days' interest.

Top rate from HSBC

The Preferential Regular Saver from HSBC pays a fixed rate of 8.00%, the highest cash savings rate in the market. The account is open to new and existing HSBC Premier, Plus, Passport and Graduate Plus customers. The account has a fixed term of one year and savers can invest between £25 and £250 per month. If access to funds is required during the term, then the account will be closed and the Flexible Saver rate will be paid, currently 0.10%.

Inflation tracking account

Savers concerned about the effects of inflation on their savings might like to consider the Index-Linked Certificates from National Savings & Investments. The bonds pay 1.00% plus RPI and savers can invest between £100 and £15,000. Savers can opt to commit funds for either three or five years, but if funds are accessed during the first year no interest or inflation proofing will be paid. Access after the first year is permitted, but a loss of interest penalty will be applied.

Family comes first

Savers with dependent children aged 16 and under (18 if in full time education) are being offered a rate of 5.00% from Norwich & Peterborough Building Society on its Family Regular Saver. The rate is fixed for the first year and variable thereafter. Savers can invest up to £250 per month into the account, but if a payment is missed or a more than one withdrawal is made then a 3.00% loss of interest penalty is payable. Instant access to funds is available if savers wish to make a withdrawal.

Link up for top ISA rates

The Super Flexible ISA from Santander is offering the highest ISA rate on the market. The account pays 5.50% and savers can invest upwards of £1 into the account, which accepts transfers in. The rate payable is variable, but is guaranteed to pay no lower than 5.50%. To qualify for the account savers must hold or open a qualifying investment product with Santander and invest at least an equal amount. The account has a 12 month term and savers can get instant access to their money if required.

Double up for best bond rates

Yorkshire Building Society is offering savers a rate of 6.00% on its Combination Bond. To qualify for the account, savers must visit an in branch advisor and invest at least £5,000 in a Legal & General investment bond. Savers can invest between £1,000 and £500,000 into the Combination Bond, but further additions are not permitted after the initial investment. The bond matures on 30th June 2011 and one penalty free withdrawal is available during the term of the deal.

For more best selling savings accounts and to compare the best savings rates for you - Compare best selling 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.