UK Savings Accounts that Finally Beat CPI Inflation

By: MoneyFacts

At a time when savers are striving to get their nest egg to work harder for them, they may be disappointed to know that monthly interest accounts are failing to offer the same rates available as alternative interest payment options. So, while they may assume they are getting more interest, this may not always be the case. If annual interest is offered, it usually pays more than the monthly option.

Thankfully, savers should start to notice better rates overall in the market, as rate rises have outweighed cuts for 15 consecutive months, as moneyfacts.co.uk recorded 114 rate rises and 49 rate cuts in March. Around half (55) of the rises were for ISAs, but there were also 16 cuts counted.

Statistics that were released today show that the Consumer Price Index has fell to 2.5%. So finally, there are a handful of longer-term fixed rate savings accounts that can beat or match this figure*.

Rachel Springall, Finance Expert at moneyfacts.co.uk, said:

“Inflation is still having an impact on the true spending power of savers’ cash, but finally it has fallen to a level where longer term savers could now beat its impact. Consumers may be looking out for a way to boost their savings income, and one of the ways to do this is a monthly interest account. These accounts are useful for those who want to invest their deposit in a way that sees the interest earned continue to grow, rather than just on the account’s anniversary. Savers can then choose to reinvest their earnings, so that interest then applies to the total balance amassed.

“Unfortunately, there isn’t much choice when it comes to monthly interest accounts, and savers may even find that they pay lower rates than what can be achieved at the top of the market. There are some cases where the rates are not too dissimilar, such as Wyelands Bank’s two-year bond, paying 2.15% on its anniversary or 2.13% monthly. However, after a two-year period, a customer saving £10,000 in a 2.13% account would be £0.09 better off than if they chose the 2.15% yearly rate. With regards to easy access accounts, though, the best in the market for a monthly interest option pays just 0.01% shy of its annual rate, with RCI Bank UK paying 1.29% monthly, or 1.30% on its anniversary.

“One of the main reasons why there are less monthly interest options is likely to be down to the cost of providing the service, and the payment of additional interest - in comparison to an account that pays interest yearly. Savers are also more likely to find a monthly interest account with a challenger bank than they are with a familiar high street brand.

“Thankfully, as a whole, savings rates are on the up, and with the continued murmurings of a base rate rise this year, it is expected for the market to move in a positive direction. In addition, the future for savings rates look much brighter thanks to the closure of Government lending schemes. However, savers won’t see an instant change, as lenders still have four years from their transaction date to lend out the funds. On the plus side, once this cash dries up, providers are expected to once again fight for savers’ attention.

"As rates are on the up, some savers may prefer not to lock their money away for the long-term, so they can easily move funds if the need arises. However, they might be missing out on some of the best rates we’ve seen since the start of 2018."

**Data Note: Please note that these savings product numbers only include deals that are available to all UK residents (this figure does not count each interest payment option for each account). Moneyfacts has chosen not to include products that have limited access, such as locals-only, high net-worth clients or linked products that require you to have an existing account to obtain headline rates. Moneyfacts has taken the view that as these accounts will not be available to your entire readership and their inclusion may be misleading to your readers by directing them to accounts they may not be entitled to. We do, of course, hold all this data should you require it. Our daily Moneyfacts savings rate monitoring started in July 2015 and is a record of live standard savings account changes, which include fixed rate bonds of all terms, all ISAs, notice accounts and no notice accounts.

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