Inflation reaches highest level since July 2014 – where can you look for the best return?

Author: Anna Bowes
19th January 2017

The latest inflation figures out this week will be a blow for savers, effectively further eroding the interest earned in real terms. Although it’s now harder to improve returns it’s not impossible, but it does mean that fewer accounts now beat inflation so make sure you choose wisely!

The Consumer Price Index (CPI) now stands at 1.6% for December 2016, up from 1.20% in November and is now at the highest level seen since July 2014. Although the rate is still low by historical standards and off the Government’s 2% target, with the base rate and importantly savings rates at record low levels, we’re now in desperate need of higher interest rates. Hopefully Mark Carney is reading this!

Not all is lost. You can still beat inflation and even retain easy access through High Interest Current Accounts, with rates of up to 5% AER on offer. These accounts have become a saver's saviour in recent years, albeit for those with smaller balances. But by opening multiple high interest current accounts you can still access rates of up to 5% AER and 3% AER and still save a reasonably large lump sum.

High interest paying current accounts haven’t been immune from changes in the market with several high-profile accounts seeing a reduction in rates in recent months. Santander’s very popular 123 Current Account was the first to take the hit towards the end of 2016, reducing its rate from 3% AER to 1.50% on balances up to £20,000. Shortly followed this month by Lloyds and TSB which reduced the rates paid on their high interest paying current accounts from 4% AER to 2% and 5% AER to 3% respectively.

The good news is that you can still beat inflation and boost returns even after some of these reductions have come into force. Although high interest current accounts generally come with rafts of terms and conditions along with being restricted to relatively low maximum balances, a couple happy to open multiple current accounts could deposit over £100,000, earning an indicative rate of 2.15% AER and interest of £2,295 gross per year, which in the current climate is not to be sniffed at.

The best rates are still with firm favourite Nationwide Building Society paying a whopping 5% AER on balances up to £2,500. Tesco Bank is next, paying a great rate of 3% AER on balances of up to £3,000, with competitive rates also available from Bank of Scotland, Lloyds and Santander even after the latter two providers reduced rates. TSB sadly reduced the maximum balance as well as the rate meaning the amount of interest you can actually earn with them is now pretty small. But as every little helps, you may like to add them to the list.

For those who are happy to tie up their funds, Fixed Rate Bonds are another possible way to earn a return that beats inflation, with rates of up to 2.05% gross/AER available. For more information, please take a look at our Fixed Rate Bond Best Buy Tables

Again, if you’d like to talk through how you can improve your savings we’re always at the end of the phone or drop us an email. And for savers with large lump sums looking for help finding, opening and managing their savings, our Concierge advisers are ready to help on 0800 321 3581.


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