Savings accounts that beat inflation (just): We examine the best deals
By Clare Francis, Moneysupermarket
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The Consumer Prices Index (CPI), the country’s official rate of inflation, rose unexpectedly in March from 3.4 per cent to 3.5 per cent. This is bad news for the nation’s embattled savers who will have been hoping that the recent falls in the rate of inflation would continue.
Many economists still believe that CPI will continue falling this year and get back to the government’s target of 2.0 per cent, although with fuel and food prices continuing to climb a growing camp believe this may not be the case.
The deputy governor of the Bank of England, Paul Tucker, warned the inflation could stay above 3.0 per cent this year. So what does this mean for savers?
Fixed deals: Halifax offers five, four and three year products that pay more than the rate of inflation
Basic-rate taxpayers need to earn at least 4.38 per cent on their
savings to beat tax and inflation while those in the 40 per cent band
need a savings account that pays 5.83 per cent and 50 per cent taxpayers
need to earn 7.00 per cent or more.
While there are a few accounts that
offer basic-rate taxpayers a positive return once tax and inflation are
factored it, the only way those in the higher-rate bands can generate a
positive real rate of return at the moment is with a cash ISA.
Cash ISAs
The benefit of cash ISAs is that you aren’t taxed on the interest you
earn so in order to generate a positive return on your savings you just
need an account that pays more than the rate of inflation.
The good news is there are quite a lot of cash ISAs offering rates in excess of 3.50 per cent.
The potential bad news is that they are all fixed rate deals so only
suit those who can afford to lock their money away for a few years.
You can put up to £5,640 into a cash ISA this tax year.
The highest rates are available on five year products. Halifax's ISA Saver Fixed is paying 4.50 per cent [more details].
As with most fixed rate savings account only one deposit can be made so
put in as much as you can afford to when the account is opened as you
won’t be able to top it up at a later date.
The minimum deposit is £500 but you
can obviously pay in more than this. The account also accepts ISA
transfers so if you have money invested from a previous tax year that is
no longer earning a competitive rate, you can move it over.
You will not be able to access your
savings during the fixed-term however, so if five years is too long to
tie it up for go for a shorter-term product.
Halifax also offers the leading four-year fixed rate ISA at 4.35 per cent [more details]. The terms are the same as on the five-year product albeit the fixed term is obviously shorter.
Short term: Santander's One-year Fixed Rate ISA equals inflation paying 3.50%
If four years is too long to tie your money up for, the leading three-year rate is 4.25 per cent - again this is from Halifax [more details], while you can earn 4.05 per cent over two years with BM Savings (Birmingham Midshires) [more details]. The minimum deposit on this account is also £500 and transfers are accepted.
If you would prefer an even shorter
term you can’t beat the current rate of inflation, but you can equal it.
Santander’s One-year Fixed Rate ISA is paying 3.50 per cent [more details].
The minimum deposit is slightly
higher than the other accounts mentioned at £2,500, although you can
transfer money from an existing ISA so you don’t necessarily have to
have a lump sum of £2,500 to invest now in order to take advantage of
this account.
Non-ISA accounts
Higher and top rate taxpayers can’t earn a positive return at the moment with a standard savings account but those in the 20 per cent tax band can.
If you have already used this year’s
ISA allowance, or are planning to invest it all in a stocks and shares
ISA (you can invest up to £11,280 in the 2012/2012 tax year), there are a
few five-year fixed rate bonds paying more than the 4.38 per cent basic
taxpayers need to beat the effects of tax and inflation.
Secure Trust Bank’s Five-year Fixed Rate Bond (Issue 2) is paying 4.52 per cent on balances of £1,000 or more [more details]. It is operated by phone or post.
Alternatively, if you would prefer an
account you can manage online Vanquis Bank’s High Yield account pays
4.51 per cent for five years [more details].
Again the minimum deposit is £1,000.
State Bank of India has a postal and branch operated five year bond paying 4.50 per cent, also on balances of £1,000 or more.
If you have less that BM Savings has a five year Fixed Rate Bond paying 4.40 per cent [more details]. This is a postal account and the minimum deposit is just £1. Bear in mind you can only pay money in at the time the account is opened so you will probably be depositing more than £1.
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If its a say 3 year fixed isa. will you get interested added at the end of each year, therefore earning interest on interest. or do they just at the end of the term give you the interest. In which case would a 1yr fixed give a better return because you can move it next year if the rates are better.
- saver!, essex, 25/4/2012 08:18
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