10 top inflation-busting savings accounts
Over 150 savings accounts will now beat inflation, following a dip in inflation from 1.7% to 1.6% in March 2014.
The 0.1 percentage point fall in the Consumer Prices Index (CPI) means that basic-rate taxpayers now need to find a savings account paying a gross 2% in order to beat inflation; while a higher-rate taxpayer needs to get their hands on an account paying 2.67% to maintain the spending power of their savings.
There are currently 159 savings accounts that will do this, according to Moneyfacts, including 88 tax-free cash Isas (where savers only need obtain a rate of 1.6%).
This is a "significant" improvement on this time last year, Moneyfacts added, when just seven accounts - all cash Isas - could beat inflation of 2.8% at the time.
Moneywise asked savings expert Andrew Hagger for his pick of the best inflation-busting savings accounts and Isas:
- Shawbrook Bank 18 month fixed rate bond, 2.05%
- ICICI HiSave 3 year fixed rate bond, 2.70%
- Close Brothers premium gold 3 year fixed rate bond, 2.70%
- Shawbrook Bank 5 year fixed rate bond, 3.10%
- First Save 7 year fixed rate bond, 3.50%
- Metro Bank Instant Access, 1.65%
- Tesco Bank 1 year fixed rate Isa, 1.65%
- Halifax 2 year fixed Isa, 2.00%
- Nationwide BS 2 year fixed Isa, 2.05%
- Coventry BS 4 year fixed Isa, 2.75%
"Falling inflation is long overdue good news for savers as it softens the blow of rock-bottom interest rates, but it's still a pretty dismal situation for those seeking an income from their nest egg," Hagger said.
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.
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).
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).