Finding savings accounts that can help you beat rising inflation is increasingly tough. After the latest Government figures showed that the Retail Prices Index (RPI) has reached 5.1 per cent, you would need a savings rate of at least 6.38 per cent if you are a basic rate taxpayer to beat inflation. And, if you are a 40 per cent rate tax payer, you would near to earn a whopping 8.5 per cent on your savings to make money in real terms.
So, if you are looking for returns which will keep pace with rising prices, why not consider inflation linked bonds?
New inflation linked bonds promise to keep pace with price rises
Three providers – the Yorkshire Building Society, the Post Office and Birmingham Midshires – have all launched new inflation-linked bonds. These accounts offer a rate of return that is pegged to the RPI and it means that your savings will grow in real terms whatever happens to UK inflation.
The Birmingham Midshires and the Post Office accounts pay you the actual RPI rate plus an additional amount. The Birmingham Midshires account pays RPI (calculated each January) plus 0.25 per cent, meaning that this year you would benefit from an interest rate of 5.35 per cent.
The Post Office will pay RPI (calculated each April) plus 1.5 per cent, which works out at a rate of 6.6 per cent. This makes it the only account on the market that ensures a basic rate taxpayer will actually beat the Retail Prices Index.
Bear in mind however that you may have to commit your money for a period to these accounts; the Post Office requires you to tie your cash up for five years.
ISAs can also offer an inflation beating option
Another way that you can try and beat inflation is to invest in an Individual Savings Account (ISA). As you don’t pay any tax on the interest you simply need an interest rate that is higher than the inflation rate of 5.1 per cent.
With the end of the tax year approaching, many ISA providers will launch new deals over the next few weeks. It is therefore worth keeping a close eye on the latest ISA deals to take advantage of any account that can offer an inflation busting rate.
