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Published: 21/03/2017

Official figures show that inflation soared in February, rising from 1.8% in January to stand at 2.3%, the highest seen since September 2013 and exceeding the Bank of England's 2% target in a single 0.5% swoop. Unfortunately, this has had a devastating impact on savings returns, with only one savings account in the entire market now able to pay a rate that will match or beat it.

This means it's vital to make sure your money's working as hard as possible, and to do that you may want to focus on long-term savings goals. For example, fixed rate ISAs may not be able to offer an inflation-beating return in the current environment, but they still offer valuable tax-efficiency for the long-term, and could be a great way to shore up your finances for the future.

However, the one account that is able to provide an inflation-proofing return is Milestone Savings' five-year bond. It boasts a rate of 2.30%, matching the current rate of CPI, which means you stand the best possible chance of keeping your funds protected from the eroding effects of inflation (unless you want to consider a high interest current account or stocks & shares ISA, but these come with their own limitations).

Savings rates on the rise

In some slight good news, the savings market as a whole is showing signs of improvement, despite inflation eating into things somewhat, as our data shows that the number of rate rises has outweighed rate reductions for the second month running!

Indeed, we recorded an impressive 87 rate rises in February – with some increasing by as much as 0.50% – compared with 27 cuts, a welcome turnaround from much of last year. This has helped the average two-year fixed rate rise above November 2016 levels to reach 1.10%, while the top five-year bond now pays 0.29% more than it did six months ago, and long-term ISA rates have also shown signs of improvement.

"A second month of rate rises outweighing cuts is providing a much-needed boost to savings products, particularly those with fixed rates," said Charlotte Nelson, finance expert at Moneyfacts. "The primary reason for this sudden change in direction is the heavy competition among challenger banks, while the larger banks still shy away from the Best Buys – in fact, not one of the main banks appears in the Best Buys today.

"Savers do now have the opportunity to get a better rate than they were able to six months ago; back in October last year the top five-year bond paid 2.01%, whereas now you can find a rate that is 0.29% higher. However, despite the sudden upturn in rates, rising inflation means savers are still getting little to no return on their money."

Charlotte pointed out that many had pinned their hopes on the new NS&I three-year bond, which is set to launch later this year and will pay a fixed rate of 2.20%. It had been expected that this would prove an inflation-busting rate, but not only is it already below CPI, it's failing to stand out from the crowd – so you may want to consider a few alternatives.

Unfortunately, it's only set to get more difficult for savers in the months ahead, as Charlotte concludes: "Inflation is already a huge impact on savers' interest, but as it is expected to rise further, times will be tough. With 48% of the easy access market paying 0.25% or less, there are better deals out there. But savers will need to work extra hard at keeping on top of the Best Buys to maximise their interest."

What next?

Compare the top savings rates to make your money work as hard as possible


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. Links to third parties on this page are paid for by the third party. You can find out more about the individual products by visiting their site. will receive a small payment if you use their services after you click through to their site. All information is subject to change without notice. Please check all terms before making any decisions. This information is intended solely to provide guidance and is not financial advice. Moneyfacts will not be liable for any loss arising from your use or reliance on this information. If you are in any doubt, Moneyfacts recommends you obtain independent financial advice.

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