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Best inflation-beating savings rates: Make your money work harder

Inflation climbed to 6.2 per cent over the last 12 months in February, up from 5.5 per cent in January – the highest it has been for 30 years.

It means that consumer prices are now rising by over three times the Bank of England’s long-term target of 2 per cent. 

Inflation is the rate at which prices rise. For example, if the average pint of milk rises from 60p to 66p over 12 months, then milk inflation is 10 per cent.

The CPI measures the average change in prices of roughly 730 core goods and services over time, including transport, food, and medical care. 

Keeping an eye on inflation is key to knowing whether or not your savings are being eaten away by inflation

Savers are seeing cash pots eroded, as not a single standard account manages to pay an inflation-beating rate, This is Money’s research reveals.

Each month we determine how many accounts match or beat the cost of living and don’t lose savers money in real terms – this month ZERO pay at least the latest consumer prices index of 6.2 per cent and that has been the case for a while. 

The best easy-access deal pays just 0.9 per cent, the top one year fix pays 1.71 per cent, whilst even the top five-year fix pays just 2.3 per cent interest. 

Inflation vs savings

The truth is, there’s no such thing as a single rate of inflation. Everyone will have their own because people buy different goods and services from an array of shops and sellers.

Best accounts at a glance 

There are none that beat inflation this month, however, make sure you shop around for the best returns possible.

Easy-access: Atom Bank – 0.9%

One-year fixed-rate: Al Rayan Bank – 1.71%

Two-year fixed-rate: Al Rayan Bank – 1.96%

Easy-access cash Isa: Paragon Bank – 0.8% 

The changing price of dog food, for example, is not going to be relevant to someone who does not have a four-legged companion.

Instead, Britain’s national statisticians aim to create a representative basket of goods which is broadly reflective of the nation’s shopping habits.

This basket, which is used to calculate what we know as ‘the rate of inflation’, or the Consumer Prices Index, is updated once a year to reflect changing tastes. 

For example, at the start of this year, 19 items were added to the Consumer Prices Index and 15 items were removed.

Additions to the basket for 2022 include meat-free sausages, canned pulses, sports bras, pet collars and antibacterial surface wipes.

Removals from the basket includes doughnuts, men’s suits and coal.  

The CPI, or a version of it, is used by the Bank of England to determine how effective it is at keeping inflation around its target of 2 per cent. 

The Bank uses the rate of inflation to determine whether to raise or lower its base rate, in the hope people will borrow or spend more.

And while the base rate doesn’t quite determine mortgage or savings rates quite as often as it used to, inflation is very important for everyday savers too. 

After all, if the rate paid on savings is below the CPI, savers are almost certain to be losing money in ‘real’ terms.

And sadly, this is something that is relatively common. Not only are savings rates at all-time lows, but those being paid them often fail to switch to a better-paying account.  

Easy-access accounts with banks such as Barclays, Lloyds, and NatWest pay just 0.01 per cent interest, or £1 on every £10,000.  

This is especially the case now. The current rate of CPI in February is now 6.2 per cent and some economic commentators expect it to reach 8 per cent or more in the coming months. 

The ‘real’ value of that £10,000 would shrink by more than £600 after interest and inflation were calculated after a year if your money is parked at such a low rate. 

The inflation rise has been driven in part by energy bills after the price cap jumped at the start of the month.

The inflation rise has been driven in part by energy bills after the price cap jumped at the start of the month.

That’s why it’s important to ensure savers are earning the best rate on their cash savings that they can be.

Each month This is Money publishes figures from the analysts Savings Champion which reveal how many current savings deals beat the latest available inflation reading from the Office for National Statistics.

Coupled with our independent best buy tables, this should give savers all the information they need to find the hardest-working home for their cash. 

The gap between the best buy rates and inflation had steadily grown this year, and the gap has now widened somewhat after the February 2022 figure rose to 6.2 per cent.

In the 12 months to February 2022 

In March 2021, the CPI stood at only 0.7 per cent. In June, this figure jumped to 2.5 per cent and then to 3.2 and 3.1 per cent in August and September before rising to 4.2 per cent in October. 

As of December inflation stood at 5.4 per cent before soaring to 6.2 per cent last month.

Rising energy bills, motor fuel prices, used cars, as well as he rising cost of other goods and services including games, toys, clothing and footwear, are all combining to cause the spike, according to the ONS.

How many savings accounts beat the latest inflation reading? 
Account  Number of inflation-beating deals this month  Number of inflation-beating deals last month
Current accounts 0 0
Easy-access accounts 0 0
Notice accounts  0 0
0-23 month fixed-rate bonds  0
2-year fixed-rate bonds  0 0
3-year fixed-rate bonds  0 0
4-year fixed-rate bonds  0 0
5-year fixed-rate bonds  0 0
Total  0 0
Source: Savings Champion (figures correct as of 18/08/2021) 

Danni Hewson, AJ Bell financial analyst said: ‘6.2 per cent was the rate at which prices were rising back in February but anyone who’s filled up at the pump over the last few weeks or has shelled out for a simple loaf of bread will tell you that headline is only good for tomorrow’s fish and chip wrapper, though you’ll be paying more for that treat too. 

‘Almost across the board prices have been going up, from a glass of mineral water to a bag of sweets pretty much every time a till rings it’s going to make you wince.

According to Hewson, what people experienced in February is just the tip of the inflation iceberg. 

‘Putting Russia’s invasion of Ukraine aside for the moment, next month’s rise in the energy price cap is massive,’ she said.

‘Even if the current warm spell continues, just keeping the lights on is going to ratchet up the pressure on household budgets. 

‘The prices of products leaving the factory gate are now at the highest level for 14 years and food products are right at the top of the pile. 

‘And the cost of those materials is also heading just one way and that’s where the subject of war can’t be ignored any longer.

‘Since the 24 February the price of oil, gas, wheat, metals and vegetable oil have soared. 

‘Making stuff, transporting stuff and ultimately buying stuff is only getting more expensive.’ 

Accounts that currently beat inflation: 0

There are no general savings deals that currently beat inflation.  

This makes for bleak reading when you consider the 367 deals which beat the February 2021 reading of 0.4 per cent, and 115 which beat March’s reading of 0.7 per cent.

We have amended this month’s tables to reflect this. 

As a result, these are tough times for savers. The best thing they can do is simply to find the best rate they can and avoid losing any more money in real terms, or consider investing excess cash in the hope of better returns.

This is Money says: Savers may well think that locking their money away for several years might act as a so-called ‘hedge’ against inflation, but with the future outlook on both savings rates and price rises so uncertain, it is best to retain some flexibility at the moment.

For example, the best rate to fix for five years is 2.3 per cent from United Trust Bank – almost a third the current rate of inflation.    

There is not much of a premium for locking money away for longer than a year at the moment, so those keeping their money in cash might well be best off locking some away for up to 12 months to benefit from a slightly better rate and the certainty, while keeping the rest in the highest-paying easy-access or short-term notice account they can find. 

The best one year fixed rate deal is currently offered by Al Rayan Bank and pays 1.71 per cent.  

In terms of easy access rates, Atom Bank has jumped to the top of the independent This is Money’s best buy easy-access savings tables with a deal paying 0.9 per cent.

But savvy savers with a spare £10,000 they want to keep close – perhaps as a rainy day fund – could do better – albeit if they are prepared to opt for a Notice Account.

UBL (UK) is currently offering a 1.1 per cent 95 day Notice deal which can also be accessed through the savings platform, Raisin.

Raisin, in turn, is offering a £30 welcome bonus to any new customer who puts £10,000 or more into a savings account with one of its partner providers.

With UBL’s deal paying 1.1 per cent, the addition of the welcome bonus means that someone stashing away £10,000, could earn £140 in the first year – an effective return of 1.4 per cent – far superior to the Atom’s deal.

Investec is also offering a shorter notice period deal of 32 days via Raisin, paying 0.8 per cent which when combined with the bonus equates to an effective rate of 1.1 per cent.

One other option for savers looking to retain easy access to their cash is to switch to a Virgin Money current account.

Its customers currently have access to a market leading savings rate of 1 per cent on balances up to £25,000. For balances above £25,000, the rate is 0.5 per cent.

This means a Virgin current account customer with £25,000 stashed away in the linked saver account will earn £250 in interest over the course of one year. 

Rachel Springall, finance expert at Moneyfacts, adds: ‘Inflation stood at 0.4 per cent a year ago and the number of savings accounts which could outpace its eroding impact were plentiful. 

However, the top deals today can either match or beat the market-leading deals seen this time a year ago, which is a positive direction for the savings market, but sadly rising inflation is taking its toll and not one standard savings account can beat it today. 

The Bank of England predicts inflation will be beyond the 2 per cent target for some time yet, but even if inflation fell to 2 per cent, there are few options for savers to choose from to outpace this rate.

The base rate rises we have seen since December 2021 can have a positive impact on the savings market, but not every saver will have benefited from this movement. 

At present it is the challenger banks and building societies who are competing in the cash savings sector, with notable improvements to the easy access sector in recent weeks. 

However, as the biggest high-street banks fail to pass on the full rises to their customers, and some pay as low as 0.01 per cent in interest, it would be sensible for savers to ditch and switch.

Compare the best DIY investing platforms and stocks & shares Isa

Investing online is simple, cheap and can be done from your computer, tablet or phone at a time and place that suits you.

When it comes to choosing a DIY investing platform, stocks & shares Isa or a general investing account, the range of options might seem overwhelming. 

Every provider has a slightly different offering, charging more or less for trading or holding shares and giving access to a different range of stocks, funds and investment trusts. 

When weighing up the right one for you, it’s important to to look at the service that it offers, along with administration charges and dealing fees, plus any other extra costs.

To help you compare investment accounts, we’ve crunched the facts and pulled together a comprehensive guide to choosing the best and cheapest investing account for you. 

We highlight the main players in the table below but would advise doing your own research and considering the points in our full guide linked here.

>> This is Money’s full guide to the best investing platforms and Isas 

Admin charge Charges notes Fund dealing Standard share, trust, ETF dealing Regular investing Dividend reinvestment
AJ Bell YouInvest 0.25%  Max £3.50 per month for shares, trusts, ETFs.  £1.50 £9.95 £1.50 1% (Min £1.50, max £9.95)  More details
Bestinvest 0.40%  Account fee cut to 0.2% for ready made investments Free £4.95 n/a n/a More details
Charles Stanley Direct 0.35%  No platform fee on shares if a trade in that month and annual max of £240 Free £11.50 n/a n/a More details
Fidelity 0.35% on funds £45 fee up to £7,500. Max £45 per year for shares,  trusts,  ETFs Free £10 Free funds £1.50 shares, trusts ETFs £1.50 More details
Hargreaves Lansdown 0.45% Capped at £45 for shares, trusts, ETFs Free £11.95 £1.50 1% (£1 min, £10 max) More details
Interactive Investor  £119.88 as £9.99 per month £7.99 per month back in trading credit £7.99 £7.99 Free £0.99 More details
iWeb £100 one-off £5 £5 n/a 2%, max £5 More details
Freetrade Free for standard account £3 month for Isa  Freetrade Plus with more investments is £9.99/month inc. Isa fee No funds  Free  n/a  n/a  More details 
Vanguard  0.15%   
Only Vanguard funds
Free  Free only Vanguard ETFs  Free  n/a  More details 
(Source: ThisisMoney.co.uk March 2022. Admin charges quoted annually, may be monthly or quarterly)


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