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The one-year bonds that beat inflation  

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A few months ago, you had to lock your money away for at least three years to beat inflation. The story is very different today.

At the end of last year, savers needed to tie their money up for several years to earn enough interest to combat the effects of inflation.

Back in November, when consumer price inflation (CPI) was at 2.4%, three years was the minimum term paying an inflation-beating return.

Today, with CPI at 1.9%, you only have to lock your money away for 12 months.

Since January of this year, one-year fixed-rate accounts have begun to beat inflation for the first time since the end of 2016.

However, most savers continue to plough their money into easy access accounts, which offer up to 1.5% at the moment, falling short of the inflation rate. This means that money that is held in these accounts is losing value over time.

Sarah Coles, personal finance analyst at investment platform Hargreaves Lansdown, says: “Savers are increasingly showing unwillingness to commit their cash, as more and more of our savings moves from fixed rate deals into easy access accounts. It’s easy to understand why – in a time of relatively low rates and high uncertainty, tying your money up for years can seem a daunting prospect.”

Figures from trade body UK Finance shows 85% of money in non-ISA savings accounts currently sits in easy access accounts, with 71% of this amount with high street banks.

With the typical current high street easy access account paying 0.25%, Hargreaves Lansdown estimates that British savers are collectively squandering away £20bn a year in interest.

Coles says: “Now there are so many options for beating inflation in return for fixing, you can stay relatively footloose and fancy free without missing out on great rates.

“You should keep an emergency savings account of three to six months’ of expenses in easy access accounts, but anything more than this, you can consider fixing for the length of time that suits you best.

“The longer you fix for, the higher the interest rate you’ll be offered, but even if you only want to commit for a year, you can beat inflation.”

Best one-year bonds

The top one-year fixed rate bonds are currently offered by Islamic Banks operating to Shariah principles and offering an “expected profit rate” instead of an interest rate. BLME pays 2.2%, Al Rayan Bank 2.17%, while Gatehouse pays 2%.

Challenger brands Kent Reliance and Metro Bank also pay 2%, while Close Brothers and FirstSave pay 1.96% and Atom pays 1.93%.

If you are using an online savings marketplace, you can earn 2.05% from sharia-compliant QIB and 1.95% with FCMB through the Raisin platform, and 1.95% from Charter Savings Bank and 1.92% from ICICI Bank through Hargreaves Lansdown’s Active Savings service.

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