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The savings accounts that can beat 2.9% inflation

Paloma Kubiak
Written By:
Paloma Kubiak

The August inflation rate climbed back to a high last seen in May, dealing another devastating blow to cash savers. But there are still some accounts that can beat the 2.9% inflation figure.

The Consumer Price Index (CPI) rose to 2.9%, up from 2.6% recorded for July and the joint highest rate seen since 2013.

While the interest on savings accounts have also risen – by as much as 36% since the beginning of the year, according to Savings Champion – many of the open-to-all, standard savings accounts on the market aren’t able to pay an inflation-beating rate of interest.

This means that many cash savers are losing money in real terms.

The best easy access account from Icici Bank pays 1.25%. Tying your money up for longer periods of time used to be a solution, but today the best-buy five-year fixed rate bond from Secure Trust Bank pays just 2.51%.

Even if savers stash away their money for seven years, the best rate is 2.55% with BLME.

So what are the options for those who still want to house their money in cash?

Rachel Springall, finance expert at Moneyfacts, said: “As it becomes increasingly more difficult for savers to negate the effects of inflation, some may do well to step back and reassess their goals and perception of risk.

“If a saver had a goal to meet in 12 months’ time, then they could earn more interest by choosing a regular savings account or switching their current account versus a basic easy access account. While this may sound like a chore, it can make the world of difference for anyone put off the idea of saving because of low interest rates.

“Leaving cash languishing in an easy access account is a convenience that costs over time, so the right savings product will entirely depend on how long and how often they are prepared to put money aside.

“Current accounts are looking like one of the simplest methods to earn inflation-beating interest, but consumers must be mindful that they are likely to face funding and access restrictions on some of these options.”

Regular Savings Accounts

There are several regular saver accounts on the market paying more than inflation – but they tend to limit the amount you can earn in interest.

The top-paying is from Saffron Building Society, according to data site Moneyfacts, which pays 3.50% fixed on its 12 month bond. The minimum amount you can save is £10, with the maximum monthly deposit of £200. The account can be opened and operated in branch or by post (existing customers) only. Based on the maximum £2,400 deposit over the year, savers would have a pot of £2,445.99.

Kent Reliance pays 3% variable on its one-year bond. The minimum opening amount is £25 though the monthly deposits must be between £1 and £500. It can only be opened and operated in branch.

With both accounts, savers are permitted to make withdrawals.

There are also other types of regular savings accounts which are linked products, meaning customers must have a current account with the bank or building society to be eligible. Some also require a minimum number of direct debits and minimum amount of cash deposited, usually from your salary.

First direct, HSBC, M&S Bank, Nationwide and Santander all pay 5% interest but all have specific criteria.

For instance with First Direct, it pays 5% AER fixed for a year on up to £300 per month and partial withdrawals aren’t allowed – you will need to close your account in order to access your money.

With HSBC, existing Premier or Advance customers need to pay in between £25 and £250 a month to get the 5% rate, resulting in approximately £81 interest a year. For Bank Account Pay Monthly or Graduate Bank Account users, the rate is 3%.

Santander’s 5% regular eSaver for 1|2|3 World or Santander Select customers allows you to earn approximately £64 over the year with the maximum £200 monthly deposit. And with Nationwide, FlexOne or FlexAccount holders can deposit up to £250 a month so over the 12 months, saving the maximum would give you a total pot of £3,081.25.

M&S’ offering allows users to earn up to £81 interest in the year for those saving the maximum £250 per month.

High interest current accounts

Another option is high interest current accounts, which pay up to 5%.

Nationwide’s FlexDirect Funded pays 5% AER for 12 months on balances up to £2,500. After the first year, the rate drops to 1%. You have to pay in a minimum of £1,000 a month.

TSB Classic Plus pays 3% on balances up to £1,500. You must pay in at least £500 a month and register for internet banking, paperless statements and paperless correspondence. Savers can also earn up to £10 cashback each month for day-to-day banking.

Tesco Bank pays 3% on balances up to £3,000, guaranteed until 1 April 2019. You have to pay a minimum of £750 into the account each month and set up three direct debits.