The best inflation-beating savings and current accounts

Updated on 16 September 2020 | 12 Comments

Inflation has plummeted to a five-year low, meaning it's still possible to beat it with your savings despite rates being so rubbish.

The rate of inflation fell to its lowest level since December 2015, mainly due to the Eat Out to Help Out scheme, which pushed down restaurant prices.

The Consumer Prices Index (CPI) measure of inflation dropped from 1% in July to 0.2% in August, according to the Office for National Statistics. 

Sharp drop in restaurant prices and cafes off the back of the Eat Out to Help Out scheme had the biggest impact on inflation, followed by declining air fares and a lower-tham-expected rise in clothing prices.

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

The minimum aim for savers

Obviously, a sharp slowdown in price rises is welcome news for savers, who must at the very least aim to beat inflation to prevent their money from losing value in real terms.

While the savings rates on offer are truly terrible after the Base Rate was slashed to prop up the economy, it is now easy to beat inflation – provided you don't simply leave your cash languishing in a high street bank account or linked savings account, which often pay little to no interest whatsoever.

“This looks like good news for savers, who don’t have to work terribly hard to ensure their savings grow faster than inflation,” commented Sarah Coles, personal finance analyst at Hargreaves Lansdown.

“You can outpace it in the most competitive accounts in every market. In fact, you can beat it with the average rates too.

“But don’t be lulled into a false sense of security.

"Inflation looks backwards, and fixed rate accounts are fixed for the future, so what really matters is what happens next.”

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, nevermind during such a volatile period as this.

So any predictions should be taken with a pinch of salt.

As things stand, many analysts expect inflation to remain low in the short term, with Thomas Pugh, UK economist at Capital Economics, stating that we're unlikely to see it hit the Bank of England's 2% target within the next few years.

"The big picture is that it will be a few years before the economy is strong enough to sustain CPI inflation at the 2% target," he said, before stressing that a lot depends on the outcome of Brexit.

"The big risk to this view is a no-deal Brexit, which could cause a slump in the pound and, in turn, a temporary sharp rise in inflation to above 3.5%."

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 1.2% with Skipton Building Society.

Likewise, fixed-rate accounts paying over 2% were widely available not too long ago, but now 1.50% is the best you can get.

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 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 desparately needs moving.

No, a rate of 1-2% isn't great  – it's not even good  – but when the alternative is next to nothing at all then it's worth grabbing.

And what's more, there's no guarantee that savings rates won't fall 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 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 there money across a lot of pots.

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'd 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.

TSB’s Classic Account is less competitive than the above current accounts, offering 1.50% on balances of up to £1,500 – and you’ll have to pay in £500 a month, as well as register for Internet Banking and paperless correspondence.

Beat CPI with an easy access account

There are lots of easy access accounts that can keep pace with the cost of living (at the time of writing).

Skipton Building Society’s easy access account currently offers the best rate at 1.20% (with a bonus 0.5% for 12 months). You only need £1 to open an account. 

National Savings & Investments (NS&I) offers 1.16% with its Income Bonds, but you’ll need at least £500 to open an account. NS&I also offers a lower rate of 1% with its Direct Saver account – you only need to deposit £1.

If you’re already a customer, you can get 1% with Cynergy Bank’s easy access account (with a 0.55% bonus for the first 12 months).

Alternatively, Nationwide’s Start to Save offers 1% 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, 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 Secure Trust Bank, which offers 1.18% for its 90-day notice account. You’ll need to deposit at least £1,000.

Secure Trust Bank also offers the second most competitive rate (1.16%) with its 60-day notice account, but again you’ll need to deposit £1,000.

Alternatively, UBL offers a rate of 1% with its 30 and 60-day notice accounts – and you’ll only need £1 to open an account.

Top fixed-rate accounts

Looking at the best one-year fix, you can currently get a rate of 1.25% with Secure Trust Bank provided you deposit at least £1,000.

Shariah-compliant banks usually offer the best rate, but this isn’t the case for one or two-year bonds.

For example, Bank of London and the Middle East (BLME) offers a 1.20% expected profit rate for its one-year fixed bond.

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

Over two years, the best rate is 1.35% and is available at Secure Trust Bank (minimum deposit £1,000).

If you want a three-year fixed account, BLME tops the best buy tables at 1.45%, but you’ll need £1,000 to open an account.

Want a more traditional account offering a guaranteed rate? UBL offers 1.40% with its three-year fixed bonds.

If you're looking for a five-year fixed-rate account, BLME offers only slightly more than the above rates at 1.60% (minimum £1,000 deposit), while UBL offers 1.50%.

How the Government manipulates inflation to our detriment

Beat inflation with a Cash ISA

You can also beat inflation with a tax-free Cash ISA (important for savers who don't qualify for the Personal Savings Allowance).

Coventry Building Society currently has the best rate at 0.96% with its Triple Access ISA, but you can only withdraw money three times a year for free.

Alternatively, NS&I and Cynergy Bank both offer 0.90% through the Direct ISA and Online ISA. Both accounts allow you to easily access your cash if need be.

As with most savings products, fixed-term Cash ISAs aren't as competitive as they used to be.

For example, one of the best fixed ISAs is with Hampshire Trust Bank, which offers 0.95%, but you have to lock your money away for two years.

Other accounts may ask you to lock your money away for longer than this – and you may get a lower rate.

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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 1.10%), 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.


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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