Five Questions About: Inflation-beating savings

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The Independent Online

What interest rate do I need to beat inflation?

The Consumer Prices Index rate of inflation dipped to 4 per cent in March, down from 4.4 per cent in February. Consequently, the standard savings account interest rate needed to keep pace with inflation (after tax) has fallen slightly to 5.01 per cent for basic taxpayers, 6.67 per cent for higher-rate taxpayers and 8.01 per cent for 50 per cent taxpayers.

Where can I get these rates?

There is no easy-access account offering a high enough rate at the moment. The best available is 3.05 per cent through Nationwide. You could, however, almost keep pace with the rate currently required by basic-rate taxpayers with the AA Internet five-year, fixed-rate bond paying 5 per cent. If you have an HSBC current account, you may also be able to earn 8 per cent through the bank's 12-month Regular Saver, which requires a monthly investment of between £25 and £250.

What about inflation-linked savings accounts?

National Savings & Investments' inflation-linked savings bonds, taken off the market due to oversubscription last September, will be back on sale by next year at the latest. If that is too far away, you could consider BM Savings' five-year bond paying 1.5 per cent plus the annual Retail Prices Index increase. However, interest paid by this account is not tax-free, as it is with the NS&I bonds.

Is it worth saving?

The strain high inflation has put on our finances has prompted nearly one in 10 Britons to stop saving this year, according to But in an ideal world, you should have three months' outgoings put aside for a rainy day.

When are savings rates likely to rise?

The slight dip in the rate of inflation makes it less likely that the Bank of England will increase the Base Rate. Variable savings rates are unlikely to rise until the Base Rate begins moving up again.

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