Over a thousand savings accounts now offer inflation-busting rates – how long will they stick around?

UK inflation slowed again in March, coming in at 3.2%. That’s according to the latest Consumer Price Index (CPI) figures from the Office for National Statistics (ONS). 

The latest data is good news for savers, as slowing inflation means they can continue to earn inflation-busting interest on their cash balances. The rate of inflation fell below the Bank of England base rate in October 2023, and the gap has been widening ever since as inflation continues to cool. 

Data from Moneyfacts reveals there are currently 1,364 savings accounts on the market offering real returns. The best savings accounts are currently offering interest rates north of 5%, which is considerably higher than the 3.2% inflation rate. 

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues 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

Sign up

The Bank of England base rate remains high at 5.25%, having been held at this level for the past five Monetary Policy Committee (MPC) meetings. Savers should continue to enjoy decent savings rates on their cash balances while the base rate remains high – however they might want to act quickly to avoid missing out. Some of the best deals have already been pulled in recent months as providers keep an eye on potential rate cuts on the horizon. 

We share our analysis on the current savings market. Where can you find the best deals, and how long will they stick around?

Top savings rates on the market right now

The good news for savers is that there are still lots of inflation-busting rates available on the market right now. Of the 1,364 products available, there are 162 easy-access accounts, 143 notice accounts, 163 variable-rate ISAs, 281 fixed-rate ISAs, and 615 fixed-rate bonds. That’s according to the latest data from Moneyfacts.

In fact, there are now more inflation-busting accounts available to savers than at the start of the year. In January, 967 were available. This fell to 953 in February, before rising again to 1,365 in March.

Despite this, savers should act quickly if they want to secure the best rates. Average savings rates peaked in the autumn last year and, since then, some of the best deals have already been pulled. 

For example, in February, Nationwide slashed the rate on its 8% best-buy regular saver. Just last month, Santander also cut the 5.2% rate on its top easy-access account. 

These are the top savings accounts currently available on a £10,000 balance.

Source: Moneyfacts as of 17 April 2024.  

A new tax year started on 6 April, so if you haven’t already maximised your £20,000 ISA allowance, you could consider stashing a portion of it in a cash account so that you don’t have to pay tax on any savings income you earn. 

Most people start paying tax once they earn more than £1,000 in savings interest, although this varies depending on what tax bracket you fall into. Read our article on how to pay less tax on your savings.

Will savings rates stay high?

The Bank of England is expected to start cutting the base rate later this year. Savings rates have already fallen from their peak in anticipation of this, so savers should act quickly to secure the best deals. 

That said, markets have recently adjusted their interest rate expectations and are now opting for August or September as the most likely month for a cut from the Bank of England. Previously, experts had been forecasting May or June. 

There are several reasons for this change in expectations, with both domestic and international factors coming into play. 

Although UK inflation is falling, the latest CPI figure came in slightly higher than expected at 3.2%. Experts had been forecasting a rate of 3.1%. Furthermore, wage growth (a big driver of inflation) is still coming in quite strong, and UK economic growth has proved resilient so far in 2024. 

The Bank of England will probably want to see wage growth slow further before considering a cut to the base rate. Furthermore, positive economic growth figures in January and February will give the Bank some comfort that high interest rates aren’t causing too much damage just yet.

Furthermore, events overseas could create some nervousness within the Bank of England rate-setting committee. The US CPI figure came in hotter than expected when it was released on 10 April, rising from 3.2% in February to 3.5% in March. Furthermore, there are fears that an escalation in tensions in the middle east could lead to further inflation. 

With this in mind, it is likely that the Bank of England will tread a cautious path ahead. 

The good news for savers is that a “higher for longer” interest rate environment could see savings rates remain higher too. However it is worth remembering that the best deals are typically pulled before the base rate is cut, so don’t leave it too long. 

If you want to lock in a higher interest rate for longer and don’t need easy access to your money, you could consider opting for a fixed-rate account or fixed-rate savings bond. There are a range of options available with fixed periods of one year, two years, and longer. These options mean you will continue to earn a high rate, even once interest rates are cut. 

Shopping around to secure the best rate

Savings rates have risen dramatically since the Bank of England began hiking interest rates to tackle inflation. If your rate isn’t competitive when you compare it to the top league table, you should consider switching – particularly if it isn’t beating inflation. 

The top deals don’t stick around for long. Even within the last month, there have been some changes. “Savers will find a bit of volatility within the top rate tables since last month, so it’s essential to review their nest egg to ensure it’s still paying a competitive rate”, says Rachel Springall, finance expert at Moneyfacts.

“Inflation eats away at savers’ hard-earned cash, so it’s worth keeping this in mind when comparing different savings accounts to ensure they are earning a decent real return”, she adds.

When it comes to choosing an account, savers should be careful to read the small print as there are a range of restrictions to consider. Some accounts have minimum investment amounts. Others only pay a higher rate of interest on balances up to a certain size. Some pay a bonus rate for the first twelve months, which then falls once you have had the account for a year.

“Switching accounts is essential for any saver who finds their loyalty is not being rewarded”, Springall explains. “Considering the more unfamiliar brands is wise but it’s important consumers take time to review any restrictive criteria an account can impose to ensure it works for them”, she adds.

Before opening any account, you should ensure it is covered by the Financial Services Compensation Scheme (FSCS). This protects cash balances up to the value of £85,000, in the event that your bank or savings provider goes bust.