Inflation-beating savings accounts return to the market

There are now more than 50 savings accounts offering basic-rate taxpayers above-inflation returns

Savers have been given a glimmer of hope for 2014, with dozens of fixed-rate accounts now offering above-inflation returns as the cost of living dips to a four-year low.

Latest figures show inflation at 2.1%, down from 2.2 % last month. This means there are 51 accounts that keep your money growing in real terms, compared to three at the start of the year, according to analyst Moneyfacts: 27 fixed-rate bonds do this, and 24 cash Isas, but only if you tie up your money for at least three years.

To beat inflation basic rate taxpayers need to earn more than 2.63%. Higher rate taxpayers, however, need to earn at least 3.5% after tax, and only seven-year bonds currently pay enough.

“Basic-rate taxpayers will find inflation beating deals launched last week from Virgin Money and Leeds buliding society offering 3% over five years,” says Rachel Springall from “However, these can be beaten by other deals, such as the market leading 3.21% from Secure Trust Bank over five years, although this has a minimum deposit of £1,000.”

For higher-rate taxpayers seeking to combat the rising cost of living, Secure Trust Bank pays 3.52% over seven years, but experts say it is unwise to lock up your money for this long.

Andrew Hagger, finance expert at MoneyComms, recommends two-year deals as a maximum term, so you can switch when rates rise. “There is plenty of noise around rates rising as the Funding for Lending scheme will come to an end for household lending next year. The difference in rates between two- and three-year deals isn’t massive, and unless you’ve got a huge amount of money it’s not going to make a big different to the amount you earn.”

Other latest offers include Shawbrook Bank’s market leading two-year fixed bond, which pays 2.4%, and puts it at the top of the best-buy tables for this term, and its three-year fixed-rate bond which pays 2.65%.

First Save pays 2.35% on its two-year bond, while for cash Isas National Counties building society is paying 2.1% on its two-year account. Virgin Money pays 2.4 % for three years and accepts transfers.

Springall expects a gradual rate recovery over the next few years, “especially if banks have yet to use up the allowance the government gave them under Funding for Lending.” © 2013 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds

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