The best inflation-beating savings and current accounts

Inflation fell again to 2.4% last month. That's more good news for savers, who can now beat inflation with a range of 'traditional' savings accounts. However, that still doesn't mean you should get one...

Inflation has fallen for three consecutive months for the first time since 2015, according to official stats.

Following a drop from 3% to 2.7% in February, CPI fell to 2.5% in March and again to 2.4% last month.

While the latest 0.1% fall is hardly a drastic change, it's still welcome news of savers and means we can actually apply for a number of traditional savings accounts that will beat inflation!

Currently, the best fixed-rate deals on the market are paying up to 2.75%.

The catch? You'll have to lock your money away for at least four years to beat inflation (extend that to seven years if you want to get the aforementioned rate).

And, as loveMONEY's Sam Richardson wrote here, that could be a risky strategy given that savings rates are expected to rise in the coming months.

But that's just one reason why we think a lot of savers will be better off stashing their cash elsewhere.

Read: What CPIH, the newest measure of inflation, means for your money

Graph showing CPI inflation over the last five years (Image: ONS)

What options are available to you

We're at risk of sounding like a broken record here, but you could earn a far better rate with some or all of your cash savings... provided you're willing to jump through a few hoops.

The highest-interest accounts are really only suitable for smaller sums of money as the headline rates tend to drop off a cliff after a certain threshold is passed.

If you have a really large pot, you'll mostly be interested in the next section in fixed-rate accounts.

However, as mentioned earlier you'll either need to lock your money away for a long time or get an easy-access account and lose money in real terms while waiting for better rates to come along.

Or you could take on some risk and invest in the stock market

Right, let's take a look at the various inflation-beating savings options available to you.

Compare savings accounts, ISAs and peer-to-peer accounts on loveMONEY

Lock your money away for a long time

There are currently a few fixed-rate deposit accounts that beat inflation.

The joint top rate, 2.75% from PCF Bank and Secure Trust Bank, will require you to lock your money away for seven years – a risky move given the base rate and wider economy could change hugely during that time. 

Five-year fixed-rate deals aren't far behind, with a few paying between 2.6% and 2.7%.

Or you put your money in a four year fixed deposit and beat inflation, just about.

Vanquis Bank offers a rate of 2.52% on its four-year fix and you can apply online with minimum savings of £1,000.

Also, keep in mind that three-year fixed rates are edging closer and closer to the level of inflation – RCI Bank's three-year fix has a rate of 2.31%.

Compare fixed rate deposits here.

Savings accounts (with strings attached)

Various regular savings accounts can smash the current rate of inflation, with top accounts paying a whopping 5%.

Sadly, these are quite restrictive accounts.

First off, that great rate is only available for one year, after which point the amount you earn will fall dramatically.

Secondly, they’re really designed to attract new savers as you can’t put in a lump sum, although existing savers can at least funnel up to £300 a month into them before the rate falls after one year.

Finally, the top-paying accounts – from HSBC, Nationwide, First Direct, Santander and M&S – are only available to current account holders of each specific bank. For most people, opening a new current account just to earn £80 odd over a year isn't really feasible (although HSBC, First Direct and M&S offer money, vouchers or gifts for switching).

Not for you? Compare more deals in our savings comparison centre.

Why inflation always works in the Government's favour

Current accounts (with strings attached)

Speaking of current accounts, quite a few still offer inflation-beating rates and allow a little more flexibility than regular savings accounts.

The Nationwide FlexDirect account offers a top rate of 5% on balances of up to £2,500. However, this will drop to a measly 1% after the first year, so you will need to move your money again.

You’ll also need to deposit at least £1,000 a month to benefit from the top rate.

TSB has raised the interest rate on their Classic Plus account to 5%, on balances of up to £1,500 (although we wouldn't blame you for being a little sceptical about putting your money there right now).

Unlike the Nationwide deal, the rate doesn’t drop after a year, and you just need to deposit £500 a month and opt for paperless statements to qualify for interest each month.

Additionally, you can earn £5 cashback every month by setting up two direct debits and a further £5 if you use your card 20 times a month.

Finally, the Tesco Bank Current Account guarantees to pay 3% on balances up to £3,000 until 1 April 2019, but you'll need to pay in at least £750 a month and set up at least three Direct Debits to earn that rate.

Other options to consider

If you are saving for a house or your retirement and are under 40 years old, then you could benefit from the new Lifetime ISAs.

These allow you to save up to £4,000 of your annual ISA allowance in cash or stocks and shares and, on top of the return, these offer the Government promise to boost what you save by 25% each year.

Skipton Building Society is the only provider to offer a Cash LISA at present. It pays a measly 0.75%, but that Government – or taxpayer-funded – bonus means you'll get a markedly better rate overall.

Alternatively, it might be worth considering moving some of your cash into other places that have more risk but could offer greater rewards.

One option is peer-to-peer lending, where you lend your money to individual borrowers, businesses or investors.

This area currently isn't protected by the Financial Services Compensation Scheme but could offer far higher returns than a high-street account – plus, since April 2016 you can hold some peer-to-peer investments in an Innovative Finance ISA (IFISA), which means you can save up to £20,000 tax-free.

Fed up with paltry savings rates? Read our beginner’s guide to Stocks & Shares ISAs

This article is regularly updated

Other ways to make your money grow:

Beginner's guide to buying and selling shares

Classic car investment: can you actually make decent returns?

How to become a buy-to-let landlord

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