The best savings products to protect your cash from inflation

Inflation may be down a smidgeon at an annualised rate of 3.1% for the Consumer Prices Index and 4.8% for the Retail Prices index, but savers are still seeing their capital eroded by inflation.

Cash Isas

However, there is now a chance of protecting your money from the ravages of inflation. The savings headlines were dominated this week with news of a new five year Isa from the small National Counties Building Society which is offering savers a return equal to any increase in the RPI over the coming five years, plus 1%. This will be particularly welcome given that the government withdrew Index Linked National Savings Certificates last month.

The minimum investment is £5,100 – the full cash Isa allowance for this year. The good news is that National Counties will accept transfers in from other providers so savers who have invested the maximum each year in a Cash Isa can shelter around £50,000 from inflation. The National Counties' Index Linked Cash ISA (Issue 2) is available from Monday 23rd August. Demand is likely to be high so don’t hang around as this is a limited offer.

So is it a good buy? Do you go for the index linked bond or a fixed rate Isa? The best fixed rate Isa at the moment comes from Halifax and is paying 4.25% fixed for four years on sums of £500 or more – and the account also accepts transfers in from other providers.

The gamble will be whether the RPI averages more than 3.25% over the coming five years in which case the National Counties Index Linked Isa which pays RPI plus 1% will be the better bet. The fact that the government has chosen to decouple many State benefits from RPI and link them instead to the generally lower CPI indicates that the authorities are possibly accepting that inflation will be way above the Bank of England’s 2% target for some time to come. Full details at www.ncbs.co.uk.

For those who need access to their Isa cash, Leeds Building Society is offering the best of both worlds with a fixed rate but unlimited access without notice or penalty to up to 25% of the amount deposited. It has launched a new suite of 1, 2, 3 and 5 year fixed rate Isas paying 2.25%, 2.5%, 2.75% and 3.5% respectively. The new products allow transfers in from other providers. Full details at www.leedsbuildingsociety.co.uk.

Fixed rate bonds

There have been some changes at the top of the fixed rate bond market with Bank of Baroda coming into the market with a five year bond, exclusive to Moneysupermarket.com, paying 4.9% on sums of £500 or more. For those who are wary of foreign banks it is reassuring to learn that the bonds are covered for up to £50,000 per person by the UK’s Financial Services Compensation Scheme.

Bank of Baroda has also taken the top slot in the one, two and three year fixed rate market paying 3.15% on one year bonds, 3.8% for two years and 4.3% over three years. Minimum investment is £500 in all bonds. All are exclusive to Moneysupermarket and you can get full details at www.moneysupermarket.com.

At four years Aldermore and Barnsley Building Society are both offering fixed rate bonds paying 4.25% on sums of £1,000 and £100 respectively. But is it worth tying up your money for four years at 4.25% when you can get 4.3% for a three year investment from Bank of Baroda?

In the five year fixed rate market Aldermore is now not far behind Bank of Baroda paying 4.75% fixed on sums of £1,000 or more and ICICI Bank is also paying the same rate on its five year fixed HiSave bonds. Both have a minimum investment and you can open an account online at www.aldermore.co.uk or www.hisave.co.uk.

Instant access

Having incurred the wrath of Citywire readers last week with an aside about instant access it’s time to put the record straight. There are differences between the comparison websites and Moneyfacts separates out ‘introductory offer’ accounts from instant access accounts while Moneysupermarket lumps them all together. So the best instant access account is arguably Ing Direct’s Savings Account paying 2.75% guaranteed for the first year - with no introductory bonus.

You can invest from £1 upwards and make unlimited penalty free withdrawals. But you must be prepared to operate the account online or by telephone as Ing doesn’t have branches. Don’t assume that Ing will always pay such a competitive rate either as after the first year the rate reverts to 0.5% so you will have to shop around again.