The best inflation-beating savings and current accounts

Updated on 18 November 2020 | 13 Comments

Inflation has risen slightly, but it's still possible to beat it with some savings accounts despite rates being so rubbish.

The rate of inflation has risen from 0.5% in September to 0.7% in October due to rising clothing and food prices, according to the Office for National Statistics. 

Rising inflation obviously represents a challenge to savers, who must at the very least aim to beat it to prevent their money from losing value in real terms.

The challenge is made even trickier by the fact that current savings rates are truly awful.

That's why you need to be proactive and not leave your money languishing in your bank account or linked savings account, which often pay little to no interest whatsoever.

Read: how the UK's inflation basket reflects our changing tastes

Why savings rates are so low

The Bank of England cut the official Base Rate of interest to a record low 0.1% earlier this year and pledged huge wads of cheap cash to banks to keep them lending, and it’s all too easy to see just how dramatically the top savings rates have changed as a result.

Late last year, a handful of easy access accounts paid 1.45%, but the best you can do now is 0.75%.

Fixed-rate accounts paying over 2% were widely available not too long ago, but now 1.50% is the best you can get – and you'll have to lock away your money for five years.

Best ways to beat inflation

With such derisory rates, it can feel pointless even bothering to move your money to a new account, but it's really important that you do.

This year, many high street banks have slashed their existing accounts to 0.1% or, in some cases, nothing at all.

Quite how something that doesn't pay interest can be called a savings account is a debate for another day, but the point is millions of us will have money in these accounts that desperately needs moving.

And while a rate of 1% to 1.5% isn't great – it's not even good – when the alternative is next to nothing at all, then it's worth grabbing.

What's more, there's no guarantee that savings rates won't fall even further still, so holding off could leave you with an even poorer deal.

So, let's take a look at the various best accounts on the market, broken down by the type of savings product.

Top current accounts for savers

Current accounts generally offer some of the best rates on the market, but they're only suitable for savers with small pots or people who are happy to spread their money across a lot of places.

This is because they don't pay interest after a certain cut off point, as you'll see in our top picks below.

Virgin Money offers 2.02% on the first £1,000 in your current account, while Nationwide's FlexDirect account pays 2% interest on up to £1,500 for a year (falling to 0.25% thereafter). You’ll need to pay in £1,000 into your account every month to qualify.

Best easy access accounts

As we already mentioned, the top easy access account barely beats inflation.

West Bromwich Building Society offers an easy access account with a rate of 0.75%. You’ll only need £1 to open an account and can make unlimited withdrawals.

Saga’s easy access account offers the next best rate at 0.7% (as well as Marcus, but new applications are currently not being accepted for this account). You only need £1 to open an account with Saga.

While National Savings & Investments (NS&I) offers some of the top rates at the moment, these will be sharply cut from 24 November and will no longer be competitive.

Alternatively, Nationwide’s Start to Save offers 1% (for 24 months) but this account is designed for those who want to put away less than £100 a month and are happy to enter prize draws.


Top notice accounts

Premium Bonds deserve an honourable mention with its 1.40% prize rate (falling to 1% from December), although this obviously isn't suitable if you need a guaranteed income.

If you’re interested in a more traditional notice account, the best rate on the market is from UBL, which offers 1% for its 35-day or 90-day notice account. You’ll need to deposit at least £1 for either account.

Al Rayan Bank offers the second most competitive rate (0.9%) with its 60-day notice account, but you’ll need to deposit £250.

Top fixed-rate accounts

Looking at the best one-year fix, you can currently get an expected profit rate of 1.09% with Shariah-compliant bank Al Rayan Bank provided you deposit at least £1,000 over one year.

It’s worth flagging that an expected profit rate is not guaranteed – but Shariah-compliant banks have a strong track record of paying out.

If you want a more traditional fixed account, Tandem Bank offers 1.05% for its one-year fixed rate saver account.

Over two years, the best rate is an expected profit rate of 1.26% at Al Rayan Bank (minimum deposit £5,000 over two years).

Bank of London and the Middle East (BLME) offers a slightly lower expected profit rate of 1.2% (minimum deposit £1,000), or alternatively, Tandem Bank offers 1.08%.

If you want a three-year fixed account, Al Rayan tops the best buy tables at 1.42%, but you’ll need to deposit at least £5,000 over three years, while BLME offers 1.3% (minimum deposit £1,000).

Want a more traditional account offering a guaranteed rate? Tandem, Zopa and JN Bank all offer 1.2% with their three-year fixed bonds.

If you're looking for a five-year fixed-rate account, BLME offers 1.5% (minimum £1,000 deposit), while Zopa and JN Bank both offer 1.3%.

How the Government manipulates inflation to our detriment

Best Cash ISAs

Unfortunately, you can’t beat inflation with a tax-free easy access Cash ISA (important for savers who don't qualify for the Personal Savings Allowance).

Paragon Bank currently has the best rate at 0.65% with its Triple Access ISA, but you can only withdraw money three times a year for free.

If you want more access, Skipton Building Society offers 0.6% through its Cash ISA.

As with most savings products, fixed-term Cash ISAs aren't as competitive as they used to be, but you can just about beat inflation.

If you're happy to lock your money away for five years, Furness Building Society pays a rate of 1.1%, while its shorter two-year ISA just about beats inflation with its 0.8% 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 a Lifetime ISA.

It allows you to save up to £4,000 of your annual ISA allowance in cash or stocks and shares.

On top of the return (or interest), the Government promises to boost what you save by 25% each year – with a limit of up to £1,000.

Moneybox, Skipton Building Society and Nottingham Building Society are among those to offer the Cash LISA at present.

None offer eye-catching rates on their own (the best is 1.1%), but the 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 such as peer-to-peer lending or investing.

What next for inflation?

As anyone who regularly follows inflation rates will know, guessing what happens next is extremely difficult at the best of times, never mind during such a volatile period as this.

So, any predictions should be taken with a pinch of salt although it’s worth noting some analysts expect inflation to steadily rise.

“The current lockdown may create some short-term volatility, but the overall picture is one of low, gradually rising inflation,” said Laith Khalaf, financial analyst at AJ Bell.

“The economic damage of the pandemic means that many businesses won’t want to deter valuable customers by raising prices for some time to come.

“There is a legitimate question of whether all the fiscal and monetary stimulus thrown at the pandemic will create inflationary pressures further down the line.

“When confidence returns, we could see businesses looking to recoup losses by pushing through price rises.”


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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