Best inflation-beating savings accounts to make your money work hard

Billions of pounds are being eroded by inflation as savings are left languishing in accounts paying low interest rates.

UK inflation held steady at 3.8% in August, the same level it was the month before and still far above the Bank of England’s 2% target.

With inflation remaining high, many consumers’ savings accounts are failing to keep up.

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The average interest rate for a savings account on 16 September was 3.46%, 0.34 percentage points below the latest inflation reading, according to money comparison website Moneyfacts.

As average savings rates are lower than inflation, consumers holding money in these accounts are seeing their cash savings lose purchasing power.

Finding a savings account with an interest rate higher than the rate of inflation is vital to make sure you are not losing money in real terms.

There are currently 983 savings accounts that beat inflation on the market right now, made up of 88 notice accounts, 66 variable rate cash ISAs, 219 fixed rate cash ISAs and 527 fixed rate bonds, according to data from Moneyfacts.

This time last year, there were 1,606 deals with interest rates higher than CPI.

The top easy-access savings account on the market right now is Chip’s instant access saver. The account offers 4.8% interest for the first three months, but the rate reduces to just 2.81% thereafter, 0.99 percentage points lower than inflation.

Caitlyn Eastell, spokesperson at Moneyfacts, said: “Sticky inflation will no doubt leave many savers disheartened, as the average savings rate shows real returns remain in the negatives for the third consecutive month.

“Despite this, savers can still choose from hundreds of inflation and base rate-beating deals, but they would be wise to act quickly as this number could fluctuate because of dropping rates and unpredictable inflation.”

With the risk of inflation eroding your savings becoming increasingly likely, it could be a good time to review your interest rates and make sure your savings are working as hard as possible.

Which are the best savings accounts to beat inflation?