Inflation rose to 1.8 per cent in January, outpacing most best-buy savings rates.
The top easy-access rate in This is Money’s independent best-buy savings tables pays a measly 1.1 per cent (RCI Bank), that’s 0.7 per cent below inflation.
However, interest-starved savers can employ a few clever tricks to boost their returns. We have rounded up the best places to stash your cash to beat the rising cost of living.
Boost your returns: Savvy savers will have to hunt around for accounts which beat inflation
Regular savings accounts
Regular savings accounts pay much higher rates than even the longest fixed rate bonds – up to 5 per cent. Usually the best rates are offered as a loyalty perk for existing current account customers.
The downside is you can only add around £250 a month to these accounts. And, because you don’t earn interest on money that isn’t in an account you will need to wait until the final month to be earning that 5 per cent on your full pot.
Most require at least a £25 or £50 a month deposit for a year and you won’t be able to access your cash until the end of the term, or you forfeit your interest.
First Direct’s Regular Saver, attached to its 1st Account, pays 5 per cent and allows deposits of up to £300 a month. This is one of This is Money’s top current accounts for customer service, plus it offers a £125 switching bonus, so it could be worth switching to if you are not already a customer.
HSBC also pays 5 per cent and allows monthly deposits of up to £250. But you will have to be an Advance or Premier account holder to qualify. These accounts come with hefty balance requirements so they won’t be for everyone.
M&S Bank pays 5 per cent on savings which can be topped up by up to £250 a month. The account is reserved for existing customers but the current account could be worth moving banks for, as it pays £50 in vouchers when you sign up plus a £5-a-month top up for 24 months. It also offers a £100 interest-free overdraft.
Nationwide also pays 5 per cent to customers on its Flexclusive Regular Saver. It also allows the highest monthly deposit at £500, plus you can withdraw money from your savings account and then top it up again within the same month.
Santander’s Regular Esaver offers 3 per cent on up to £200 a month and Lloyds offers the same rate on a larger £400 monthly balance. Alternatively TSB customers get 2 per cent on a £250 monthly deposit.
Fixed savings accounts
Savings rates are so dismal that unfortunately there are no easy access accounts or Isa deals at all that come close to beating inflation.
Currently the best rates are offered by largely unknown challenger banks. These banks are willing to offer slightly higher rates to build up their customer base.
On easy access, French bank, RCI’s Freedom Savings account pays the best instant access rate at 1.1 per cent, with Leeds BS not far behind paying 1.05 per cent.
So, to find an account which keeps up inflation you will have to lock your cash away.
Until recently savers would have to commit to a term of at least three years to see returns higher than inflation.
Atom Bank, has, however, just released some market-beating rates which could be worth snapping up. It now pays 2 per cent on its one-year fix.
This is only 0.2 per cent above January’s CPI inflation figure, a slim buffer, but it is the first time a one-year fix has offered 2 per cent in just under a year.
Fixing for two years gets you a slightly higher 2.1 per cent, and the challenger offers table topping rates up 2.37 per cent over five years.
Savings rates are expected to stay at low levels for some time and savers do earn higher returns the longer they fix for.
However the 0.37 per cent interest boost you get for committing to a five-year bond compared to a one-year fix, is so small it is unlikely to be worth locking in for.
Think outside the box: In-credit interest accounts beat most high-street savings accounts
Using your current account
This is Money is always trying to encourage readers to ditch their old current accounts and make sure their bank is actually working for them.
One of the most compelling reasons to move current accounts is to get a better return on your savings pot.
A handful of banks have recently scaled back their offerings, but you can still earn interest of up to 5 per cent.
You can read our round up of in-credit interest accounts here, but below we have listed a few of our favourites.
Nationwide’s FlexDirect account pays out 5 per cent in-credit interest on balances up to £2,500 for the first year. It also comes with a fee-free overdraft for 12 months, and reduced fees of 50p per day for arranged overdrafts after that.
Tesco bank recently paused applications to its account which paid a guaranteed 3 per cent on up to £3,000 for the next two years, but this could be worth holding out for particularly if you regularly shop at the supermarket as it offers a Clubcard boost when swiping its debit cards.
TSB also pays 3 per cent but on a smaller balance of £1,500 on its Classic Plus account, but it comes with up to £120 cashback if you maintain two direct debits a month and make at least 20 debit card payments each month (until June 2018).
The Classic Account with Vantage from Bank of Scotland offers up to 3 per cent depending on how much you have in the account. It pays 3 per cent on £3,000 to£5,000, 2 per cent on £1000 to £2,999 and 1.5 per cent on £1 to £999.
The Club Lloyds Account comes with 2 per cent interest on up to £5,000 but you must pay in at least £1,500 a month to avoid a £3 monthly fee.
Santander doesn’t offer an inflation beating rate but it does pay interest on the largest balance, at 1.5 per cent on up to £20,000. However the 123 account also comes with a £5 monthly fee.
…and double up accounts to play the system
There are a few banks which will let you take out more than one account, effectively doubling or tripling the balance you can earn interest on.
The Bank of Scotland allows you to open up to three accounts, in theory meaning you can earn Vantage interest on up to £15,000.
Remember you will have to fulfill the minimum deposit and direct debit requirements for each account, so it will involve some planning.
This can get a little complicated, but it is possible to cycle the same £1,000 deposit through each account to fulfill the qualifying criteria.
Tesco Bank allows two accounts per person, meaning a total of 3 per cent across a£6,000.
Santander, Lloyds Bank, TSB and Nationwide all allow you to open both a joint and personal accounts on the 123 Account, Club Lloyds, Classic Plus and FlexDirect deals.
With these accounts it is therefore possible to hold three of the same accounts, between a couple, as long as you fulfill the eligibility criteria.
Some accounts may state in the terms and conditions that direct debits to your own accounts don’t qualify but you will be able to use credit card payments, utility bills and some savings accounts which allow direct debits.