Are you tired of seeing your savings get eaten away by inflation? You’re not alone. Many people in the UK are feeling the pinch as inflation rises, eroding the value of their hard-earned money. The good news is, there are still some savings accounts out there offering interest rates that beat inflation. Let’s dive into how you can make your money work harder for you by finding the best UK savings accounts that offer rates above inflation.
What Is Inflation and Why Does It Matter?
Before we get into the nitty-gritty of savings accounts, let’s understand what inflation is and why it’s such a big deal. In simple terms, inflation is the rate at which the general level of prices for goods and services is rising, and subsequently, the purchasing power of currency is falling. So, if inflation is running at 3% and your savings account only offers 1%, your money’s value is effectively shrinking.
Why Should You Care About Beating Inflation?
You might be wondering, why does beating inflation matter so much? Imagine inflation as a leak in your savings bucket. No matter how much water (money) you pour in, it keeps draining out. To keep your bucket full, or even overflowing, you need a savings account that not only matches inflation but ideally beats it. This way, your savings grow in real terms, increasing your purchasing power.
What Are Inflation-Beating Savings Accounts?
An inflation-beating savings account is one that offers an interest rate higher than the current inflation rate. While it sounds straightforward, finding such accounts can be tricky, especially in a low-interest-rate environment. But they do exist, and with a little digging, you can find options that help your money grow.
Types of Savings Accounts to Consider
1. Fixed-Rate Savings Accounts
Fixed-rate savings accounts lock your money away for a set period, usually between one to five years, offering a fixed interest rate. These accounts can provide higher interest rates, which might beat inflation. However, your money isn’t accessible until the end of the term, so they’re best for funds you won’t need to access immediately.
2. Regular Savings Accounts
Regular savings accounts require you to deposit a set amount each month. In return, you often get a higher interest rate compared to easy-access accounts. Some of these accounts currently offer rates that are above inflation, making them a great choice if you can commit to monthly deposits.
3. Cash ISAs
Individual Savings Accounts (ISAs) offer tax-free interest, which means you don’t pay tax on the interest you earn. Some cash ISAs are offering competitive rates that might keep up with or exceed inflation. They come in both fixed-rate and easy-access options.
4. Easy Access Savings Accounts
Easy access accounts let you withdraw your money whenever you need it, which is great for flexibility. However, the interest rates on these accounts tend to be lower. But keep an eye out for promotional offers and new banks entering the market, as they sometimes offer above-inflation rates to attract customers.
Top Tips for Finding Inflation-Beating Savings Accounts
1. Shop Around
Don’t settle for the first savings account you come across. Banks and building societies often have different offers, and rates can change frequently. Use comparison websites to get an overview of what’s available and shop around to find the best rates.
2. Consider Fixed Terms
If you don’t need immediate access to your money, consider fixed-term accounts. These usually offer higher rates in exchange for locking your money away for a set period. Just make sure you’re comfortable with the term length.
3. Look Out for New Banks
New challenger banks often offer competitive rates to attract customers. These banks might not have the same long-standing reputation as traditional high street banks, but they are regulated by the Financial Conduct Authority (FCA), so your money is protected up to £85,000.
4. Keep an Eye on Inflation Rates
Inflation rates change over time, and so do interest rates. Keep an eye on both to make sure your savings account is still offering a rate that beats inflation. If not, it might be time to switch.
5. Use Your ISA Allowance
Each year, you have a tax-free allowance you can put into an ISA. Using this allowance not only shelters your interest from tax but can also help you get better rates. Look for ISAs that offer rates above inflation to maximize your savings.
Best Savings Accounts Currently Offering Above Inflation Rates
1. NS&I Green Savings Bonds
The National Savings and Investments (NS&I) Green Savings Bonds are offering competitive fixed rates. The interest rates are set for a fixed term, often above the inflation rate, which makes them an attractive option for those looking to grow their savings while supporting green initiatives.
2. Atom Bank Fixed Saver Accounts
Atom Bank, a digital-only bank, is currently offering fixed saver accounts with rates that can beat inflation. These accounts require you to lock away your savings for a period of one to five years, but in return, you get a higher interest rate.
3. Coventry Building Society Regular Saver
Coventry Building Society offers a regular saver account that requires monthly deposits. This account comes with an interest rate that is competitive enough to stay ahead of inflation, making it an excellent option for those looking to grow their savings steadily.
4. Virgin Money Exclusive Fixed Rate Cash ISA
Virgin Money’s exclusive fixed-rate cash ISA is another option to consider. It offers a fixed rate of interest over a set term, which can be above the current inflation rate, providing a tax-free way to grow your savings.
5. Allica Bank 1 Year Fixed Term Savings Account
Allica Bank offers a one-year fixed-term savings account with interest rates that currently beat inflation. This account is ideal for those looking for a short-term investment with competitive returns.
The Importance of Safety and Security
While hunting for high interest rates, don’t overlook safety. Ensure that the bank or building society is covered by the Financial Services Compensation Scheme (FSCS), which protects your money up to £85,000. This safety net gives you peace of mind, knowing your savings are secure.
How to Open an Inflation-Beating Savings Account
1. Check Eligibility Requirements
Some accounts may have specific eligibility requirements, such as a minimum deposit or being a new customer. Make sure you meet these before applying.
2. Gather Necessary Documents
Typically, you’ll need proof of identity and address to open a savings account. Have your passport or driver’s license and a recent utility bill or bank statement handy.
3. Apply Online or In Branch
Many savings accounts can be opened online, offering convenience. However, if you prefer a face-to-face interaction, you can visit a branch. Some banks even offer better rates for online applications, so keep an eye out for those deals.
4. Set Up Regular Contributions
If you opt for a regular savings account, set up a standing order from your current account to make monthly deposits automatically. This makes it easier to stay on track with your savings goals.
Conclusion
Finding the best UK savings accounts offering above inflation rates might seem like searching for a needle in a haystack, but with some research and savvy decision-making, you can beat inflation and grow your savings. Whether it’s a fixed-rate account, a regular saver, or a cash ISA, there are options out there that can help you maintain and increase the value of your money. Remember, it’s all about making your money work for you and not the other way around.
FAQs
1. Can I access my money anytime with an inflation-beating savings account?
Not always. Many inflation-beating accounts are fixed-rate, meaning you need to lock your money away for a set period. If you need access, look for easy access accounts, though these may offer lower rates.
2. Are inflation-beating accounts safe?
Yes, as long as the bank or building society is covered by the Financial Services Compensation Scheme (FSCS), your money is protected up to £85,000.
3. How often do interest rates change?
Interest rates can change frequently. It’s a good idea to keep an eye on the market and review your savings account regularly to ensure it still offers a competitive rate.
4. What happens if inflation rises above my account’s interest rate?
If inflation rises above your savings account’s interest rate, your money’s purchasing power decreases. To counter this, consider switching to a better account or investing in alternative options.
5. Is it worth using a savings account if the interest rate is just below inflation?
Yes, even if the rate is slightly below inflation, it’s still better than not saving at all. Plus, having liquid savings is crucial for emergencies and unexpected expenses.
