Savings accounts to beat inflation

27 June 2017

Savers are facing a battle as the UK’s rate of inflation continues to be higher than the interest rate offered by almost all savings accounts.

The consumer prices index (CPI) rate of inflation was 2.7% in the year to August 2018, according to the Office for National Statistics.

This means that just four savings accounts, five regular savings accounts and two current accounts now beat inflation.

How can I make my cash beat inflation?

Unfortunately while these four accounts beat inflation most require at least a five-year saving commitment.

The best rate on the market comes from Bank of London and the Middle East offering 2.75% EPR (read more about what EPR means here) on a seven year bond. The shortest available account doesn't strictly beat inflation, it matches it at 2.7%. This is the Charter Savings Bank Five Year Fixed Rate Bond.

See the table below for the full list of savings accounts that beat inflation. 

AccountInterest rate
Bank of London and the Middle East Premier Deposit Account - Seven Year Bond2.75%
PCF Bank Seven Year Term Deposit Issue 82.75%
Bank of London and the Middle East Premier Deposit Account - Five Year Bond2.7%
Charter Savings Bank Five Year Fixed Rate Bond2.7%

Regular savers to beat inflation

There are also a number of regular savings accounts which do pay more than inflation. However, all require you to have a current account with the provider.

Consumers with a qualifying current account with First Direct, HSBC, M&S Bank, Nationwide or Santander can access linked regular savings accounts offering 5% interest.

However, these accounts have limits to the amount holders can pay in each month.

AccountInterest rate (AER)Savings limits (per month)
First Direct Regular Saver5%£25 - £300
Nationwide Flexclusive Regular Saver5%£1 - £250
HSBC Regular Saver5%£25 - £250
M&S Bank Monthly Saver5%£25 - £250
Santander 123 Regular eSaver5%£1 – £200

Remember these accounts are regular savers – designed for you to drip feed cash into over the course of a year.

Let’s use Nationwide’s 5% regular saver as an example. You can save £250 a month in this account, but you only earn interest while your cash is in the account.

This means your first £250 deposit earns 5% interest for a full 12 months, the second £250 earns it for 11 months and so on. 

Current accounts to beat inflation

Current accounts could be a good bet for your savings – especially if you want easy access. However, only two current accounts on the market beat the current rate of inflation. Both also have a minimum monthly pay-ins and other restrictions.

The Nationwide FlexDirect account pays 5% interest on balances up to £2,500 for the first year, but this drops to 1% thereafter. You have to deposit at least £1,000 each month into the account to earn this 5% rate of interest. 

Also, the TSB Classic Plus account pays 5% interest on balances up to £1,500. You’ll need to pay in at least £500 a month, register for internet banking, opt-in for online bank statements and paperless correspondence to get this inflation-busting rate.

Use the Moneywise model savings portfolio to beat inflation

Savvy savers can also use the Moneywise model savings portfolio in the fight against inflation.

Created in conjunction with advice site Savings Champion, our two portfolios use high interest current accounts, regular savers and one-year bonds to maximise your total return. The £10,000 portfolio currently returns an inflation-busting 3.31% over a year.

Money is drip fed through the accounts to achieve the best returns. There is some legwork involved in setting up this portfolio, but we think the returns make it worthwhile.

Read our guide to getting the most out of your savings.

In reply to by anonymous_stub (not verified)

Hi Lobby, the accounts which pay more than inflation are the regular savers from First Direct, HSBC, Lloyds Bank, M&S Bank, Nationwide and Santander. Plus the current accounts from Nationwide, Tesco Bank and TSB – these are strictly current accounts rather than savings accounts but each of them pays a high rate of interest and charges no monthly fee. Although note that the each of these accounts have minimum pay-ins and some other restrictions.

In reply to by anonymous_stub (not verified)

I. Have been looking at some investments which are offering 8%-8.5%, I was thinking should I invest, they are for 1yr 3yr or 5yr, obviously the longer you invest and more you put in helps, I haven't mentioned names, as I'm still sceptic, can you advise anything thank you, ps, being in the lap age gap is what makes me unsure, thank you, Bill

In reply to by anonymous_stub (not verified)

The list of Regular Savers accounts giving detail of interest rates is a little confusing. Some indicate (thumbs down) that a current account is required, then checking some that don't indicate this states in the details that a current account is required. Am I reading this incorrectly?

In reply to by anonymous_stub (not verified)

Colin and Garry, you need to be more respectful, this article is not incorrect at all. A regular saver is a drip feed account, it is not meant to be a lump sum account, and neither does this article claim it to be. Yes, you're correct in that the interest amount awarded at the end will be the equivalent of half the total amount when looking at the headline figure vs. the rate, but you fail to account for the money that hasn't yet been dripped in earning interest in other accounts. Every single pound in a regular saver earns the advertised interest rate at all times, so it's absolutely inflation beating. You both seem to understand the concept of a regular saver, but seem to forget that interest is calculated daily, not annually with these accounts.

In reply to by Adam Williams

Some of these accounts reel you in by offering what at first is a good rate compared to other banks then reduce it to a pittance once they consider you a settled customer, now they treat you like dirt. Might as well dig a hole in the garden and store it there, rather than risk having your accounts restricted as with recent TSB fiasco. I grew up in a time when you felt that your savings were safe at a bank, I don’t believe that anymore. Some banks are not as liquid as they would have you believe. You need to be keeping a portion of your hard earned with easy access, should any of these banks find themselves in trouble again.

In reply to by anonymous_stub (not verified)

It should be stated that these regular savers all have limitations, some severe, or is this obvious to all.

In reply to by Mike (not verified)

Mike, EXACTLY what I was going to say!

In reply to by William (not verified)

Hi William, I presume you are referring to peer-to-peer investments? I would suggest reading our guide to the risks invovled in peer-to-peer lending and then my investigation into the P2P market from last year, both will give you some information to help make an informed choice on whether this kind of investment is right for you.The most important thing to remember is that these are long-term investments, not savings products, and you do risk losing your cash.

In reply to by anonymous_stub (not verified)

Why are you quoting 3+% ,When there are 8%+ in the market place ??

In reply to by anonymous_stub (not verified)

Those regular saver accounts are not all what one might think......the headline amount is not paid on the whole gross amount on reaching 12 x £250 ( £3000) its paid on each single contribution.

In reply to by anonymous_stub (not verified)

Hi Keith, I'm afraid to say that while you may have a regular saver accepting £500 a month, Nationwide has since lowered that monthly limit to £250 for new account openings.

In reply to by anonymous_stub (not verified)

The Nationwide Flex regular saver monthly limit is £500 not £250 as stated and joint account holders can each have one - so that is £1000. My wife and I have held these for 2 years. Nationwide do not make the joint bit obvious!

In reply to by anonymous_stub (not verified)

Hi M, some of the regular saver accounts we have selected can be opened and maintained with deposits of £1 per month. Each of the accounts currently selected do require a linked current account, and these all have minimum pay-ins, but you can usually meet these by moving around your existing cash each month. You can read more on this in our guide to "current account ping pong"

In reply to by anonymous_stub (not verified)

Re savings accounts. As a pensioner with a low income but some savings, nothing on offer will keep me up with inflation. I cannot afford to make regular payments into the accounts you suggest - they all require a reasonable regular income.How about a pensioners special from you instead of quoting accounts which we are unable to access.

In reply to by anonymous_stub (not verified)

Hi Mags, some of the regular savers the article mention only require a minimum monthly pay in of £1 so you don't need to have lots of money to make a gain. It can be £1 one month and the next if you have a little more you can pay in £10 for example. So you shouldn't feel ruled out, of course other conditions apply such as having a current account with the bank too but there are a few providers who do not impose these requirements. Ford Money had a really popular one, (£25-£250 pm deposits) it was so popular they closed it early, it's not currently available but I would recommend bookmarking their website and then checking in from time to time.

In reply to by anonymous_stub (not verified)

The above savings accounts are all very well, however, they require a regular amount going into the account each month, and other necessary procedures/payments. As a pensioner with moderate means, this virtually rules me and many other pensioners out. With a static income, there is no chance of making a little more.

In reply to by anonymous_stub (not verified)

Correction: The Nationwide Flexclusive Regular Saver has a maximum monthly savings limit of £250 not £500 as stated (sadly).

In reply to by anonymous_stub (not verified)

Where are the nine savings accounts to beat 2.6% inflation? The article only lists 6,

In reply to by anonymous_stub (not verified)

Unbelievable - I came to this article because I was wondering what these accounts were that I had missed. However the article is simply and quite significantly incorrect - bit scary from a financial source! I hadn't missed anything - the headline rates of 5% are certainly higher than inflation at 2.6% but the annual interest on a Regular Saver is effectively only half the headline rate, so coming in at 2.5%. Perhaps still worth having but certainly not inflation beating!

In reply to by anonymous_stub (not verified)

You people need to go on a basic maths course,a regular saver only accumulates at the full rate for one month of the year,example Lloyd bank pays 5% per annum if you deposit £400 in January you will only get the full 5% for that month all other months will only be in for part of the year are and reduced accordingly.

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