198 savings accounts now keep up with inflation
Filed under: Savings & ISAs
It's been a tough few years for savers.
The Bank of England's base rate has been held at an astonishingly low level for three years now, while prices have risen at a relatively fast rate. In other words, inflation has been very high when compared to interest rates.
Need to know: Savings
So I was very pleased to see this week's news that the Consumer Prices Index measure of inflation had fallen to 2.5% in August, down from 2.6% in July, and 5.2% last September.
That means that a basic rate taxpayer only needs to find an account paying 3.12% to keep up with inflation. Once you've paid 20% income tax on 3.12% interest, you'll end up with a 2.5% return.
Need to know: Savings
Of course, if you go for a Cash ISA, you won't have to pay any income tax, so an ISA paying 2.5% will do the business for you.
The really good news is that there are now 198 savings accounts that enable basic rate taxpayers to keep up with inflation even after they've paid income tax, according to Moneyfacts.
The top accounts
So let's take a look at the best of those accounts.
Sadly even after the fall in inflation, there are no instant access savings accounts that match inflation after tax, so I'll start with some one-year fixed rate bonds.
If you're prepared to lock your money away for a year, you could get a 3.35% return if you put your cash in the BLME 1 year Premier Deposit account. That's assuming you have a spare £25,000 to put in a savings account, as that's the minimum balance for the account.
If you don't have that kind of money, the Post Office Growth Bond (Issue 18) has a much lower minimum balance at £500 and will pay you 3.25% for a one-year bond.
As ever with savings accounts, you'll get a better return if you're willing to lock your money away for two years. Once again, the top-paying bond comes from BLME, but you can also get a great 3.5% rate from United Bank. This account has a £2,000 minimum balance.
Top one- and two-year bonds
For 40% taxpayers, the crucial figure is 4.2% interest. Any 40% taxpayer who is receiving interest above 4.2% is beating inflation.
At three years, I suspect the Co-operative Bank Fixed Term Deposit account will be popular with lovemoney.com readers as it offers a nice combination of a trusted high-street brand and a decent 3.62% return.
Top three-, four- and five-year bonds
Another option is to lend your money via a peer-to-peer website such as RateSetter or Zopa. You may be able to get a return as high as 7.6% from these sites.
And then there's tax-free Cash ISAs.
The Halifax ISA Saver five-year bond is the highest-paying ISA with a 5% interest rate. Of course, you'll have to lock away your money for five years, but you'll get the satisfaction of knowing you're getting a return that is double the current rate of inflation, and you won't have to pay any tax!
Let's just hope that inflation doesn't start rising again! Then savers will be really fed up.....
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