Best inflation-beating savings accounts to make your money work hard

Billions of pounds are being eroded by inflation as savings are left languishing in accounts paying low interest rates.

UK inflation rose to 3.8% in July, the highest level in 18 months, up from June’s figure of 3.6% and still high above the 2% target.

With inflation edging higher, many consumers’ savings accounts are failing to keep up.

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The average interest rate for a savings account is currently 3.45%, 0.35 percentage points lower than the latest inflation reading, analysis by money comparison website Moneyfacts shows.

As average savings rates are lower than inflation, consumers holding money in these accounts are seeing their cash savings lose purchasing power.

Finding a savings account that lets your money grow faster than inflation is, therefore, vital to make sure you are not losing out. But such accounts are becoming increasingly harder to find.

There are just 952 savings accounts on the market right now that pay interest rates higher than the current level of inflation, out of 2,018 accounts in total, according to Moneyfacts.

Of these, just 81 accounts are inflation-busting easy-access savers. Some of these have a boosted rate for a set period of time, meaning customers may find their savings are at risk of being eroded by inflation after the boost comes to an end.

The top easy-access savings account on the market right now is Chip’s instant access saver. The account offers 4.8% interest for the first three months, but the rate reduces to just 2.81% thereafter, 0.99 percentage points lower than inflation.

The same can be said for the second-best easy-access rate with Chase, which offers 4.75% interest inclusive of a 2.17% boost for the first 12 months.

Savers might want to make a note of when boosted rates come to an end to ensure their money keeps working hard.

As for fixed-term savings accounts, there are 518 inflation-beating deals on the market, but savers are being urged to act quickly as they could become harder to come across.

Savers in September have much less choice for fixed-term accounts than they did in August, with the total number of fixed rate savings accounts falling by 119 from 637, Moneyfacts found.

The top one-year savings account on the market right now from Afin Bank offers an interest rate of 4.52%, 0.72 percentage points above inflation.

Caitlyn Eastell, spokesperson at Moneyfactscompare.co.uk, said: “Over the past month the number of fixed bonds paying above inflation has fallen by over 100, and with further spikes expected, savers may find it increasingly harder to find an attractive deal. Adding to the struggle, many of the top bonds pay less than 1% in real terms.”

Eastell said today’s rates pale in comparison to those savers enjoyed two years ago, when they peaked at over 6%.

She added: “Those savers who were lucky enough to secure a top deal and deposit £10,000 could now be enjoying over £1,000 in interest. However, if they decide to reinvest today, due to tumbling rates, they will earn almost £350 less by the time their two-year term ends.”

Despite the much lower interest earnings that savers can earn today, Eastell warns: “It is crucial that savers are not deterred, as many fixed bonds are still very competitive and choosing not to do anything could leave them significantly worse off.”

With the risk of inflation eroding your savings becoming increasingly likely, it could be a good time to review your interest rates and make sure your savings are working as hard as possible.

Which are the best savings accounts to beat inflation?