Government-owned National Savings & Investments (NS&I) has relaunched its savings certificates that guarantee to beat inflation.

The five-year deal tracks the Retail Prices Index (RPI) inflation measure plus 0.5% on deposits between £100 and £15,000.

The returns are tax-free even though they are not part of a cash Isa wrapper, though they are less generous than the inflation-beater NS&I had last year at RPI + 1%.

With inflation at 5.3%, virtually every savings account is a 'losings' account as the returns fail to keep track of rises in the cost of living.

What's more, the Bank of England signalled yesterday that inflation could rise further.

For a basic rate taxpayer to earn 5.3% they'd need an account paying 6.63% before tax, while a higher rate taxpayer would need a pre-tax 8.83%.

The top easy access savings account pays 3.05% before tax.

How interest is paid

On each account anniversary, NS&I will pay the annual rate of inflation plus a fixed amount of interest.

The fixed interest is an average of 0.5% over the five years but it is tiered. At the end of year one it is 0.25%, but by the end of year five it is 0.86%.

Say RPI is 5% on your first account anniversary (which means prices have risen by 5% during the previous 12 months), it will pay 5.25% interest.

On a £1,000 deposit, the new balance after the anniversary will be £1,052,50.

That balance is then brought forward and used to calculate the next year's interest, and so on.

Can you withdraw money early?

You have full access to your cash but if you withdraw in year one, you earn no interest.

In future years, if you withdraw early, you will get the RPI-linked bonus plus the fixed rate of interest already earned up to your last anniversary.

In addition, you will get any subsequent rise in the RPI index plus a pro-rata amount of the fixed interest for any complete month since your last anniversary.

What if there's deflation?

If the RPI index is negative, known as deflation, which means prices have fallen, NS&I will assume RPI is zero for that year so you will only get the fixed interest but the value of your investment will not fall.

Are inflation-beating accounts the answer?

Inflation-beating savings accounts are attractive during periods of high inflation but they are not guaranteed to be the best rates.

If inflation drops and interest rates rise then you could earn more from a conventional account.

One plus of saving with NS&I is that your money is 100% protected by the Government, regardless of the total amount deposited with NS&I in any of its accounts.

How do you get inflation-beating savings certificates?

Savers must apply via NS&I. They will not be available through the Post Office. 

Why inflation is bad news for savers

People saving money keep it for a rainy day or a special purchase, but also to make that cash grow.

While it will grow even on a 0.01% interest rate, if prices rise by 5.3% in the coming year, your cash will buy you a lot less in 12 months than it does now.

Imagine you've £1,000 in the top 3.05% easy access savings account, after basic rate tax you'd have £1,024 in a year – as you've earned £24 interest.

Now suppose that £1,000 is enough for ten weekly supermarket shops. If prices rise by 5.3% next year, you'd need £1,053 to buy the same goods.

So although your savings might have grown, the impact of inflation means what you can buy with the money has fallen, meaning your cash loses value.