Savers suffer when inflation runs high, so there was some relief when the rate of inflation slowed to 3.6% last month, down from 4.2% in December.
A basic-rate taxpayer at 20% must now find a savings account paying 4.50% a year to beat inflation. A higher-rate taxpayer at 40% should look for an account with an interest rate of at least 5.99% – and that’s not easy when the average no-notice account pays a miserly 0.92%.
There are 1100 savings accounts on the market and the number that beat tax and inflation has jumped from a mere eight last month to 47 today. So if you want to make the most of your hard-earned cash you have to pick your account with care.
You might also have to open a fixed-rate account. BM Savings, for example, is offering a five-year bond at 4.65%. Or the AA’s five-year fixed rate pays 4.60%. Higher-rate taxpayers cannot beat inflation in a standard account.
A cash ISA might be a better bet – and you can put up to £5340 in a cash ISA in the current tax year. The accounts are tax-free, so both basic and higher rate taxpayers have to search for an ISA that pays more than the rate of inflation, so 3.6%. And there’s more of a selection, though again you might have to lock into a fixed-rate deal.
Yorkshire Bank’s Cash ISA Fixed Rate Bond, for example, pays 4.40% for four years. Or there’s a five-year fixed rate from BM Savings at 4.25%.
Remember that if you opt for a fixed-rate account, you cannot normally access your money within the term. You also run the risk that savings rates will start to rise and you will be stuck with a dud deal.
Here’s our list of some of the best savings accounts on the market right now.
Naomi Caine was editor of The Sunday Times Money section for six years before she moved out of London to bring up a young family. She now juggles two children with a freelance career, and has written for a variety of publications, including MSN, Yahoo, The Times, The Sunday Times, Which? Money, Money Week and The Sunday Herald.