Beware of savings accounts promising inflation-busting returns

Things are beginning to look up for savers, with a handful of accounts that promise you inflation plus a little extra on top. But beware. Not all of them are as good as they first appear, says Ruth Jackson.

Do you remember when saving had a touch of joy to it? You earned money. You put it away. Then, when you checked your account a year later you found you had more than you started with. Sadly, those days have gone. Sure, there might be a few more pennies in your account at the end of the year than the start. But they won't buy you more than your original stash would have. Instead, they'll buy you less.

With inflation now at 5.1%, according to the Retail Price Index (RPI), you need to be getting an interest rate of at least 6.38% (8.5% if you are a 40% taxpayer) in order to see the purchasing power of your money actually increase after inflation and tax are taken into account. That hasn't been easy: the best rate on offer has been 4.85% with Principality Building Society (and to get that you have to lock your money away for five years).

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Ruth Jackson-Kirby

Ruth Jackson-Kirby is a freelance personal finance journalist with 17 years’ experience, writing about everything from savings accounts and credit cards to pensions, property and pet insurance.

Ruth started her career at MoneyWeek after graduating with an MA from the University of St Andrews, and she continues to contribute regular articles to our personal finance section. After leaving MoneyWeek she went on to become deputy editor of Moneywise before becoming a freelance journalist.

Ruth writes regularly for national publications including The Sunday Times, The Times, The Mail on Sunday and Good Housekeeping, among many other titles both online and offline.