Savings accounts are at increased risk of having their value eroded by inflation, but research shows that millions of Brits are still keeping their hard-earned savings in low-interest accounts.
UK inflation rose to 2.6% in November, according to the latest Consumer Price Index (CPI) reading from the Office for National Statistics (ONS). This is the highest level that UK inflation has reached since March, and it poses a headache for policymakers and savers alike.
Putting your money into a savings account should be the safest means of protecting your money for the long term. However, high levels of inflation eat into the value of your savings account over time, so choosing the best savings account possible is essential.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
At a minimum, the interest rate on your savings needs to be higher than the rate of inflation, and based on the latest figures and research from Moneyfactscompare.co.uk, 1,582 savings accounts are currently available that fit the bill.
“Top deals across the fixed market have experienced minor fluctuations since the previous inflation announcement, bringing some welcome stability,” Caitlyn Eastell, a spokesperson at Moneyfactscompare.co.uk, said.
The total number of inflation-beating savings accounts includes 209 easy access accounts, 180 notice accounts, 184 variable rate ISAs, 314 fixed rate ISAs and 695 fixed rate bonds.
The good news is that there are more inflation-beating savings accounts currently available this December than in the two prior. 1,127 savings accounts were able to beat the November 2023 CPI reading of 3.9% in December 2023, while in December 2022 there were none that could beat the 10.7%reading for November 2022.
However, it is possible that rates could be adjusted as providers push towards meeting their end-of-year targets. For this reason, Eastell said “savers would be wise to take advantage of a competitive savings market and seek the highest-paying deals”.
Are you making the most of your savings?
Despite the importance of keeping savings in the best account possible, data from Yorkshire Building Society (YBS) shows that millions of Brits are missing out on thousands of pounds in extra income by keeping their savings in a low- or no-interest account.
According to the research, £360 billion of savings is sitting in accounts paying returns of 1% or less.
YBS research shows 13 million people have more than £5,001 in a current account, earning no or minimal interest.
The average balance in these accounts standing at £26,600.
Putting this average sum into, for example, an easy-access savings account paying 4% interest would yield £1,064 over a year.
“Despite the attention savings interest rates continue to have, it’s surprising that there continues to be such large pockets of people who are missing out on savings interest which in turn could have easily covered the cost of the festive period for many,” said Chris Irwin, director of savings at Yorkshire Building Society.
“For those that don’t have savings that could generate additional income, starting a regular saver now would give shoppers a healthy sum to draw on for Christmas next year - without having to rely on credit.”
Which are the best savings accounts to beat inflation?
According to Moneyfactscompare.co.uk, these are the best savings accounts that are currently available, paying inflation-beating levels of interest.
| Account type | Top savings deals at £10,000 gross - today |
|---|---|
| Easy access account | Atom Bank – 4.75% |
| Notice account | RCI Bank UK – 4.90% (95-day) |
| One-year fixed rate bond | Al Rayan Bank (Raisin UK) – 4.80%** |
| Two-year fixed rate bond | Castle Trust Bank – 4.64% |
| Three-year fixed rate bond | Hodge Bank – 4.62% |
| Four-year fixed rate bond | UBL UK – 4.54% (payable on maturity) |
| Five-year fixed rate bond | UBL UK – 4.64% (payable on maturity) |
**Islamic bank, pays an expected profit rate. Top rates exclude deals with restrictive criteria. Notice accounts exclude those over 180 days Source: Moneyfactscompare.co.uk
“A handful of new providers have entered the scene, which is positive news in terms of competition and for savers willing to switch to challenger banks, who will have their own pricing strategies,” said Eastell.
Which are the best ISAs to beat inflation?
Cash ISAs are another option for investors who want to protect their savings both from inflation and from the taxman.
Moneyfactscompare.co.uk has identified the following cash ISAs that offer inflation-beating interest on cash savings:
| ISA type | Top savings deals at £10,000 gross - today |
|---|---|
| Easy access ISA | Moneybox – 4.92% |
| Notice ISA | West Brom BS – 4.60% (60-day) |
| One-year fixed rate ISA | Castle Trust Bank – 4.52% |
| Two-year fixed rate ISA | Hodge Bank – 4.40% |
| Three-year fixed rate ISA | UBL UK – 4.55% (payable on maturity) |
| Four-year fixed rate ISA | UBL UK – 4.30% (payable on maturity) |
| Five-year fixed rate ISA | UBL UK – 4.53% (payable on maturity) |
**Islamic bank, pays an expected profit rate. Inflation announcement dates. Top rates exclude deals with restrictive criteria. Notice ISAs exclude those over 180 days. Source: Moneyfactscompare.co.uk
“Cash ISAs have seen a more mixed bag of activity, with most fixed rate deals pushing in the upward trend by 0.03%,” says Eastell. “Savers looking to maximise their tax-free investments may wish to consider locking in for the longer-term as the top five-year fixed rate ISA beats its one-year counterpart.”
-
House prices near record high as stamp duty hike loomsUK house prices have risen 3.4% over the past year. Is it being driven by a rush to beat April’s stamp duty hike?
-
Nationwide £100 bonus: how to make sure you don't miss out on the next Fairer Share paymentNationwide Building Society has offered a £100 Fairer Share bonus to eligible customers for two consecutive years. It's likely this payment will be made again - here's how to make sure you're eligible
