Five-year bonds only refuge from inflation

SAVERS wanting to protect their cash from inflation have no choice but to turn to five-year bonds and modest returns.

The cost of living rose to 2.5 pc a year as measured by the consumer price index (CPI) last week, up 0.1 percentage points on the previous 12 months.

The monthly rise wipes out potential benefits savers hoped for after the 0.25 percentage point rise in the Bank of England base rate this month to 0.75 pc.

It also means that not a single easy-access account currently pays more than inflation.

Instead, savers will have to lock their money away for five years. Secure Trust and OakNorth banks pay 2.69 pc on their five-year bonds — just a fraction more than inflation.

Savers with National Savings & Investments ( NS& I) IndexLinked Certificates can also roll these over for another year. NS&I links the rate on its certificates to a second measure of inflation and pay 0.01 percentage points over the retail prices index.

Unlike the more widely-used CPI, this measure includes housing costs such as mortgages and council tax. It is rising by a faster 3.2 pc a year. Economists expect the CPI to fall to the Government target level of 2 pc next year.