The best inflation-beating savings and current accounts


Updated on 19 November 2019 | 8 Comments

Inflation has fallen to a three-year low, but savers still need to be vigilant if they want their hard-earned cash to beat it.

Inflation has fallen from 1.7% to 1.5% in October thanks to lower energy prices as a result of the energy price cap, according to the Office for National Statistics.

For savers, this means it's easier to beat the rising cost of living than it has been for some time.

However, you'll still need to lock it away in a decent fixed-rate saving account to do so (or use a current account with a decent interest rate, as we'll explain later).

Graph: how inflation has changed since 2014

CPI graph based on ONS figures (Image: ONS)

Easy access accounts close to inflation

It's been a long time since easy access savings accounts have been able to keep pace with inflation. And while we're not quite there yet, it's getting tantalisingly close.

The highest-paying easy access savings rate is currently Marcus (alongside Virgin Money and Cynergy Bank) at 1.45%. With Marcus, you can take your cash out whenever you want.

Virgin Money’s Double Take E-Saver restricts you to two withdrawals a year, while Cynergy’s easy access account is only available to existing customers.

Lock your money away to beat CPI

By parting with your savings for just one year, you could earn an expected profit rate of 1.90% with Bank of London and the Middle East and beat inflation.

It's worth stressing that Shariah-compliant banks, including Al Rayan Bank and Bank of London and the Middle East have never failed to pay the rate, and deposits of up to £85,000 are protected by the FSCS. 

If you’re looking for a more traditional account with a guaranteed rate, you could try Metro Bank, which offers 1.80%.

If you're prepared to lock your money away for a little longer, you could earn 1.90% expected profit rate with Bank of London and the Middle East's 18 Month Fixed Term Deposit.

This is also the same rate on offer from Metro Bank, if you prefer a guaranteed rate.

Willing to wait two years? Bank of London and the Middle East and Gatehouse Bank top the two-year fixed-rate bond tables with an expected profit rate of 2.10%.

You can still beat inflation if you lock your money away for two years as United Bank UK offers a guaranteed 2%.

It's even possible to beat inflation and have easy access to your money with certain current accounts.

Here's our guide to your options for beating inflation.

How the Government manipulates inflation to make itself rich

What options are available to you?

We're at risk of sounding like a broken record here, but you can 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 current accounts are really only suitable for smaller sums of money as the headline rates tend to drop off a cliff after a certain threshold (or a specific amount of time) has passed.

If you have a really large pot, you'll mostly be interested in the next section on fixed-rate accounts ­– or you could take on some risk and invest in the stock market

Let's take a look at the various inflation-beating savings accounts available to you.

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

Lock your money away for 12 months or more

Bank of London and the Middle East's 12-month fixed-term deposit offers a 1.90% expected profit rate. You'll need £1,000 to get started.

If you're looking for a more traditional account, an option is Metro Bank, which offers 1.80%.

If you can wait for two years, there are a huge number of inflation-beating accounts.

Top of the list is Bank of London and the Middle East and Gatehouse Bank's expected profit rate of 2.10%, or alternatively United Bank UK offers a guaranteed 2%. 

You can earn a better rate of 2.36% if you lock away your cash for even longer with United Bank UK’s five-year fixed-term bond.

Beat inflation with a Cash ISA

You can also beat inflation with a tax-free Cash ISA, but you'll have to be patient.

United Bank UK’s two-year Cash ISA pays 1.67%, but you'll need £2,000; Metro Bank pays a 1.60% interest rate, which is guaranteed, and you'll need only £1.

Other banks pay slightly higher rates for two-year fixed rate Cash ISAs but require hefty deposits.

You can get 2.01% for a Cash ISA from United Bank UK, but you'll need to lock your money away for five years.

With the Personal Savings Allowance, you can earn £1,000 (basic rate taxpayer) or £500 (higher rate) in interest each year tax-free with a traditional savings account, so you may not need an ISA.

Compare fixed-rate, access savings accounts, Cash ISAs and P2P investments (capital at risk) on loveMONEY

Savings accounts (with strings attached)

Sadly, regular savings rates have been slashed in recent weeks and as a result, you aren't guaranteed to beat inflation with a regular saver.

But for new savers and those who combine these accounts with a top access savings account (known as 'drip-feeding') they're still a good option.

So, what can you get?

At the time of writing, the best rate for you can get is 2.75% with First Direct, HSBC and M&S Bank.

Regular savings accounts with competitive rates usually only offer them for a year, after which point the amount you earn will fall dramatically.

As mentioned earlier, these accounts are designed to attract new savers or 'drip-feeders', so you can’t put in a lump sum, although you can at funnel up to £500 a month into them before the rate falls.

It’s important to point out that all the top regular savings accounts are only available to current account holders of the specific banks (and limited to a maximum monthly deposit of £300).

For most people, opening a new current account to earn up to £80 in interest over a year isn't really feasible (although first direct and M&S offer money or vouchers for switching), but you can get slightly lower rates at Principality BS (2.7%) and Coventry BS (2.5%) without having to open a new bank account.

Inflation-beating savings accounts listed (Image: Shutterstock)

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. But 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.

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.

Skipton Building Society, Moneybox, Nutmeg, The Share Centre and Nottingham Building Society are among those to offer the LISA at present.

Moneybox offers the best rate at 1.40% followed by Nottingham Building Society at 1.25%.

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.

Not for you? Compare more deals in our savings comparison centre, or have a look at our comprehensive roundup of all the best cash savings strategies.

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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