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Threefold rise in the number of inflation-beating savings accounts

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Savers will welcome the latest inflation figure as it means the number of savings accounts beating inflation has more than tripled in a month.

Consumer price inflation fell sharply to 1.7 per cent in August, down from 2.1 per cent the month before, meaning there are now 194 inflation-busting accounts up from just 58, according to Hargreaves Lansdown.

The bad news is savers will still need to tie their money up to outpace inflation as no easy accounts pay 1.7 per cent. The best you can get is 1.61 per cent from Al Rayan Bank.

To beat inflation, one option is a notice account. These require you to give your bank or building society advanced warning if you want to withdraw your money.

Islamic bank Gatehouse is currently offering an expected profit rate of 1.82 per cent on its 120-day notice account, with a minimum deposit of £1,000.

Meanwhile, three 95-day notice accounts now beat inflation. Charter Savings Bank pays 1.81 per cent, with a minimum of £5,000, while Close Brothers is offering 1.8 per cent and Investec will give you 1.79 per cent, both on a minimum of £10,000.  However, these rates are all variable so could change at any time.

If you’re after a fixed rate, the best option is a three-year account from Islamic bank BLME, which offers 2.45 per cent.

If you don’t want to tie your money up for that long, BLME is paying 2.35 per cent on its two-year account.

It’s worth noting that there’s been a reversal in the trend that the longer you fix your savings rate for, the higher the rate will be. Shawbrook Bank, for instance, is paying 2.4 per cent on its seven-year account, while BLME is offering 2.3 per cent on its seven-year product, less than you can get with a two or three year deal.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, said this is driven by markets expecting rates to remain low over the next year or two, and then fall even lower.

“In this kind of topsy turvy savings market, the most sensible approach is to fix for a shorter term at a higher rate and make hay while the sun shines,” she said.

Other options

Some regular savings accounts pay 5 per cent (First Direct, HSBC and M&S Bank) but you’ll need to have a current account with these banks to be eligible. And you’ll need to be comfortable that you can set money aside each month.

If you’re saving for your first home, many Help to Buy ISAs pay inflation-beating rates. Tipton & Coseley Building Society offers the market-leading, open-to-all deal paying 2.6 per cent. But you could get as much as 3 per cent, depending where you live (see Who offers the best Help to Buy ISA rates?)

Premium bonds are another option. Potential prizes may look even more attractive when compared with interest rates available elsewhere. But remember, the average person will win nothing each month.

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