The best savings accounts to beat rising expenses as inflation hits a 40-year high of 9.1%

Rising inflation means higher bills for UK households and is also eating away at the value of your excess cash – but the good news is savings can help ease that pressure

Putting a coin in a white piggy bank at home.
The best savings offers will help you take the sting out of inflation

The costs are rising for all UK households – but the silver lining is that the interest paid by savings plans is also rising.

UK inflation rose to 9.1% today as the cost of living crisis continues to weigh on household finances.

The Consumer Price Index (CPI), a measure of inflation, rose to its highest level since March 1982 in the 12 months to May.

When inflation goes up, it basically means your money doesn’t go as far as it used to.

For example, if something cost £1 a year ago and the inflation rate has been 9% since then, it would cost £1.09 today.

Inflation also affects the purchasing power of your free money.

If you stored £100 under your mattress for a year and inflation is 9%, the purchasing power of that £100 will be closer to £91 after 12 months – because it has fallen in value by 9% or £9.

Savings deals can’t beat inflation, but they can mitigate the benefit if you have cash left over


(Getty Images)

The reality is a bit more complicated, as inflation is a very rough number, but that’s basically it.

Cash lying under the mattress loses value in this way because it does not earn interest.

This is where savings offers come into play, which pay you interest on the money deposited.

In an ideal world, savers could invest their money in a business that pays an interest rate higher than inflation – meaning the purchasing power of their money grows over time.

Unfortunately we do not live in this world.

There are no savings offers on the market that pay more than inflation and the best interest rate is only 5.02%.

But that doesn’t mean savers should lose heart.

If you’re lucky enough to have cash left over, it means putting it into a deal at the best possible rate that you’re still offsetting the way erosion eats away at your hard-earned cash.

What is the best savings rate available?

Technically, the highest rates are paid by two checking accounts.

It’s unusual that checking accounts pay the most interest of any savings business, but in fact the top two businesses are now bank accounts.

However, due to the terms and conditions attached to both offers, it might be better to put these aside and consider other savings offers instead.

That’s because both offers pay high interest rates, but only on small amounts of cash. So if you have more than £1,500 to save, other offers might make more sense.

The top rate on the market is 5.02% for a Virgin Money M Plus current account – but only for people who aren’t currently Virgin customers.

The Virgin Money option pays 2.02%, which can be increased to 5.02% over 12 months if you switch your main checking account to Virgin.

But the rate is only paid up to £1,000 a year, meaning the maximum you could make is £50.

The second best rate is 5%, which Nationwide pays for everyone who closes their FlexDirect checking account.

While the 5% rate looks great, the deal isn’t easy to come by and comes with several strings attached.

Firstly, the rate will only be paid on up to £1,500 of your cash per year – meaning you would only receive £75 at most.

Second, new customers must apply for and be accepted into the account, which requires presentation of ID at a nationwide branch.

Third, the 5% rate only applies for one year and then falls to 0.25%.

Finally, you need to deposit £1,000 into the account each month to get the installment.

That sounds like too much effort – what else pays off?

Fixed-rate bonds are the most common form of interest-bearing savings, but they require you to invest your money for one, two, three, or five years.

Savers who don’t want to part with their money for more than a year can get a 2.6% interest rate from Atom Bank, which requires a minimum of £50 to complete the deal.

The best fixed rate bond pays 3.05%, but to get that you’d have to lock up your money for five years with a deal from Monument and put in at least £25,000.

The next best rate on a five-year bond is 3% from Raisin, which takes £1,000 to open.

What if I don’t want to lock up my money?

If you want quick access to your money, an easy access account is a good choice.

The top rate on the market is 1.56% Virgin Money and you can open it with £0.

The key string of strings here is that you need to open a Virgin checking account to get the deal, but you don’t have to actually use it.

The second best easy access rate is 1.5% from Chase, which can also be opened with £0 and requires a Chase bank account to be eligible.

If you don’t feel like opening a new current account, Zopa will pay 1.4% for an account you can open with £1.

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Fry Electronics Team

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