With the consumer prices index (CPI) currently standing at 2.6%, there are a number of inflation-beating accounts available. We look at the current top 10.
With the consumer prices index currently standing at 2.7%, there are a number of inflation-beating accounts available.
Following the recent rise in inflation, savers can now only choose from around 40 accounts out of 965 if they want to beat tax and inflation. Only a handful of these are Fixed-rate accounts, and the rest are ISAs.
To beat inflation, a basic-rate taxpayer now needs to find a regular savings account paying at least 3.37%, while a higher-rate taxpayer needs to find an account paying 4.5%.
In the top spot is the five year bond from State Bank of India paying 4.2%. The full table of the top 10 accounts is listed below.
To illustrate the effects of inflation, £10,000 invested five years ago, in an account paying the top rate of 4.2%
AER, would now (with
CPI at 2.7%) have the spending power of just £10,386 after you have paid 20% basic-rate tax, taking inflation into account.
The top 10 inflation-beating accounts on the market
|
ACCOUNT |
TERM
|
RATE
|
ACCOUNT |
TERM |
RATE |
|
State Bank of India |
Five-year bond |
4.2%
|
State Bank of India
|
Four-year bond |
3.8%
|
|
Triodos Bank |
Five-year bond |
3.75%
|
State Bank of India
|
Three-year bond |
3.65%
|
|
United Trust Bank |
Five-year fixed rate ISA
|
3.35%
|
Coventry
BS
|
60-day notice ISA |
3.25%
|
|
Halifax |
Five-year fixed rate ISA |
3.2%
|
Halifax
|
Four-year fixed rate ISA |
3.1%
|
|
Marks and Spencers Bank |
Three-year fixed rate ISA |
3%
|
Halifax
|
Three-year fixed rate ISA |
3%
|
ISA
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
Inflation
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
CPI
The Consumer Price Index is the official measure of inflation adopted by the government to set its target. When commentators refer to changes in inflation, they’re actually referring to the CPI. In the June 2010 Budget, Chancellor announced the government’s intention to also use the CPI for the price indexation of benefits, tax credits and public sector pensions from April 2011. (See also Retail Prices Index).
AER
Where APR is the rate charged for money borrowed, Annual equivalent rate is how interest is calculated on money saved. The AER takes into account the frequency the product pays interest and how that interest compounds. So, if two savings products pay the same rate of interest but one pays interest more frequently, that account compounds the interest more frequently and will have a higher AER.
