Best inflation-beating savings rates: Make your money work harder

The truth is, there’s no such thing as a single rate of inflation. Everyone will have their own because everyone in the country buys different goods and services from different shops and sellers.

The changing price of dog food, for example, is not going to be relevant to someone who does not have a four-legged companion.

Instead, Britain’s national statisticians aim to create a representative basket of goods which is broadly reflective of the nation’s shopping habits.

Keeping an eye on inflation is key to knowing whether or not your savings are being eaten away by inflation

This basket, which is used to calculate what we know as ‘the rate of inflation’, or the Consumer Prices Index, is updated once a year to reflect changing tastes. 

After 2020, for example, hand sanitiser, home workout gear and electric cars were among the 17 items added to the inflation basket.

The CPI, or a version of it, is used by the Bank of England to determine how effective it is at keeping inflation around its target of 2 per cent. 

The Bank uses the rate of inflation to determine whether to raise or lower its base rate, in the hope people will borrow or spend more.

And while the base rate doesn’t quite determine mortgage or savings rates quite as often as it used to, inflation is very important for everyday savers too. 

Inflation busting accounts at a glance

Two-year fixed-rate: Zopa Bank – 0.77% – £1,000+

Fixed-rate Isa: Close Brothers – 0.7% – three-year fixed-rate – £10,000+ 

Correct as of 21 April 2021 

After all, if the rate paid on savings is below the CPI, savers are almost certain to be losing money in ‘real’ terms.

And sadly, this is something that is relatively common. Not only are savings rates at all-time lows, but those being paid them often fail to switch to a better-paying account. Many of Britain’s biggest banks pay just 0.01 per cent interest, or £1 on every £10,000.

Although the current rate of CPI was just 0.7 per cent in March, the most recent reading, that would mean the ‘real’ value of that £10,000 would shrink by £69 after interest and inflation were calculated.

That’s why it’s important to ensure savers are earning the best rate on their cash savings that they can be.

Therefore, each month This is Money will publish figures from the analysts Savings Champion which reveal how many current savings deals beat the latest available inflation reading from the Office for National Statistics.

Coupled with our independent best buy tables, this should give savers all the information they need to find the hardest-working home for their cash. 

Unless rates rise, if inflation returns to the Bank of England’s 2 per cent target then none will beat inflation, but for now price rises remain low due to so much money having been sucked out of the economy as a result of the lockdown.

The Consumer Prices Index measure of inflation rose to 0.7% in the 12 months to March 

In the 12 months to March 2021

In March 2021, the CPI rose by 0.7 per cent, up from 0.4 per cent in the 12 months to February.

‘Rising prices for motor fuels and clothing’ caused the rise, according to the ONS. 

How many savings accounts beat the latest inflation reading? 
Account  Number of inflation-beating deals this month  Number of inflation-beating deals last month
Current accounts 9
Easy-access accounts 3 29
Notice accounts  4 43
0-23 month fixed-rate bonds  4 97
2-year fixed-rate bonds  22  68
3-year fixed-rate bonds  30 59
4-year fixed-rate bonds  10 16
5-year fixed-rate bonds  32  42
7-year fixed-rate bonds  4
Total  115 367
Source: Savings Champion (figures correct as of 21/04/2021) 

This means that there are currently: 

115 available non-Isa savings accounts which will not lose savers money in real terms, according to Savings Champion. 

This is down by more than a third on the 367 which beat February’s inflation reading of 0.4 per cent.

These include six interest-paying current accounts, just three bread and butter easy-access accounts, and just four fixed-rate deals requiring savers to lock their money away for less than two years.

If nothing else, this is indicative of just how low savings rates are at the moment. 

George Nixon, This is Money’s savings reporter, says: Savers may well think that locking their money away for several years might act as a so-called ‘hedge’ against inflation, but with the future outlook on both savings rates and price rises so uncertain, it is best to retain some flexibility at the moment.

There is also not much of a premium for locking money away for longer than a year at the moment either, so those keeping their money in cash might well be best off locking some away for up to 12 months to benefit from a slightly better rate and the certainty, while keeping the rest in the highest-paying easy-access or short-term notice account they can find. 

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