Inflation falls to 3.6% and a list of the inflation beating savings accounts

3 min Read

15 Feb 2012

The annual rate of Consumer Prices Index (CPI) inflation in the UK fell to 3.6% during January, down from 4.2% in December according to the Office for National Statistics (ONS).

Retail Prices Index (RPI) inflation - which includes mortgage interest payments - fell to 3.9% down from 4.8% in December.

The slowdown in the rise in food and energy prices were partly responsible for the monthly fall, however, the biggest contributor was the effect of last year's VAT hike falling out of the calculations.

However, despite the fall in inflation the CPI rate still remains well above the Bank of England target of 2%.

Good news for savers

Well the fall in inflation is welcome news for savers as before today there were only a few savings accounts offering interest rates in excess of inflation - and none beat inflation when taking into account the tax paid on that interest.

The fall in inflation means that basic rate savers need to secure a savings rate in excess of 4.5% per annum (gross) in order to maintain the spending power of their savings once tax has been deducted from their interest.

There are now a handful such accounts which I've listed below. Note: savers will have to lock up their savings for 5 years.

Savings accounts

(data from moneyfacts based on £1,000 lump sum)

Provider	AER	Account Type	Notice/Term	Interest Paid
BM Savings 5 Year Fixed Rate	4.65	Fixed	5 Year Bond	Monthly or Annually

AA 5 Year Fixed Rate Savings	4.60	Fixed	5 Year Bond	Anniversary
Scottish Widows Bank 5 Year Fixed Term Deposit	4.60	Fixed	14.02.17	Anniversary Quarterly

Scottish Widows Bank 5 Year Fixed Term Deposit	4.59	Fixed	14.02.17	Monthly

Vanquis Bank High Yield	4.51	Fixed	5 Year Bond	Monthly or Anniversary

Cash ISAs

But of course if your savings are held in a cash ISA then the interest is paid gross which means that the rate of interest you need to receive in order to beat inflation is 3.6+%. Currently there are 27 accounts offering such a rate and I list the top 3 below:

(data from moneysupermarket based on £1,000 lump sum)

Provider /Account name	Interest Rate (AER)	Investment	Notice / Term
Kent Reliance Flexible Fixed Rate ISA Five Year Issue 1	4.35% Fixed Paid Monthly or Yearly	£1,000 min invest Transfer In	5 Year Bond

BM Savings 5 Year Fixed Rate ISA	4.25% Fixed Paid Monthly or Anniversary	£500 min invest Transfer In	5 Year Bond

Halifax SA Saver Fixed	4.2% Fixed Paid Anniversary	£500 min invest Transfer In	5 Year Bond

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