Savers chasing the best rates on the market could earn over £1,000 in real terms this year as interest rates outpace falling inflation.
Inflation fell from 3.4pc in February to 3.2pc in March, the lowest level since September 2021. With the Bank of England base rate unchanged since August at 5.25pc, many savings accounts are offering inflation-beating rates.
The best easy-access account on the market is Ulster Bank’s Loyalty Saver, with a variable rate currently set at 5.2pc. It means a saver with a £50,000 deposit will earn £2,600 in a year, or £1,000 in real terms once inflation is taken into account.
Moneybox offers the most lucrative cash Isa on the market with an interest rate of 5.16pc which would secure a real terms return of £980.
It’s a rare win for savers who are often given a raw deal by banks which are quick to slash rates on savings accounts and slow to raise them.
However, savers still have to shop around if they want to make money. The average interest rate on an easy-access saving account is just 3.11pc, lower than the rate of inflation, according to analyst Moneyfacts.
Savers willing to lock their cash away for longer are often able to secure higher rates.
Hinckley & Rugby Building Society offers savers a 180-day variable rate account with an interest rate of 5.25pc, the highest on the market. It means a saver with £50,000 cash would stand to make £1,025 in real terms after a year.
The account requires a minimum investment of £2,500, with savers required to give 180 days’ notice if they wish to withdraw their funds.
The average one-year fixed savings account offers 4.57pc interest, which would give savers a real interest rate of 1.37pc.
It is worth remembering that interest earned from savings accounts may be subject to tax. In the 2024-25 tax year, up to £20,000 of savings can be placed in an ISA, which allows you to earn interest tax-free.
The Personal Savings Allowance means basic rate taxpayers can earn up to £1,000 in interest tax-free per year. This falls to £500 for higher rate taxpayers and to £0 for those on the additional rate.
Experts believe that downward pressure on the base rate means inflation-busting savings deals may be short-lived.
Alice Haine, of the broker Bestinvest, said: “Interest rates may end up remaining at 5.25pc for a little longer than hoped but expectations are that the Bank of England will still push ahead with rate cuts this year, with economists forecasting the first cut this summer, possibly as early as June, and the second later in the year.
“This is likely to cause savings rates to retreat further, though expectations that inflation will also ease further from here – albeit with a few bumps along the way – in turn prolonging the real return savers receive, will offer some consolation for now.”
Rachel Springall, of Moneyfacts, said: “On average, easy-access accounts pay just over 3pc, but the best deals pay around 5pc, so if someone is earning around the average rate of 3pc or less, they will be losing money in real terms, as CPI stands at 3.2pc.
“There are a plentiful number of savings accounts that pay more than 3.2pc, but it’s important for savers to check that they are earning a competitive interest rate on their hard-earned cash to beat the eroding power of inflation in real terms.”
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