Best inflation-fighting financial savings charges: Make your cash work tougher
- 1,512 savings accounts pay at least the latest CPI of 3.4%
Inflation rose to 3.4 per cent in the 12 months to December, up from 3.2 per cent in the 12 months to November, ONS figures reveal.
Today’s lower inflation figure was pushed down by prices slowing in food prices
At 3.4 per cent, inflation still sits well above than the Bank of England’s 2 per cent target.
Core inflation (stripping out energy, food, alcohol and tobacco) eased to 3.2 per cent in the 12 months to December, down slightly from from last month’s reading of 3.4 per cent.
A buffer of savings is one of the best ways to provide protection against slower wage growth and rising costs.
But high inflation means savers have fewer accounts to choose from and risk missing out on real returns
We look at what it means for your savings now that inflation is at 3.4 per cent.
Inflation watch: Inflation has risen to 3.4% and continues to hover above the bank of England’s 2% target
There are now 1,406 savings accounts which beat the rate of CPI inflation, figures from rates scrutineer Moneyfacts Compare show.
This includes 116 easy-access accounts, 130 notice accounts, 95 variable rate Isas, 352 fixed-rate Isas and 713 fixed-rate bonds.
In January 2025, t there were 1,597 deals that could beat CPI which was then at 2.5 per cent and in January 2024, there were 967 deals that could beat CPI which was at 4 per cent.
The best easy-access account, paying 4.11 per cent now outpaces inflation by 0.71 percentage points.
While the best one-year fix, paying 4.55 per cent, outpaces inflation by 1.15 percentage points.
The Moneyfacts average savings rate currently sits at 3.55 per cent.
Each month, we search for the best savings accounts to use to protect the value of your money in real terms.
For more than two years before a surprise fall in inflation arrived in November 2023, This is Money could not find not a single account that managed to match or better inflation.
But now the best easy-access deal pays 4.11 per cent interest and the best one-year fix pays 4.55 per cent – both beating the current inflation measure by some margin.
Inflation: a brief explanation
Inflation is the rate at which costs rise. For example, if the average pint of milk rises from 60p to 66p over 12 months, then milk inflation is 10 per cent.
The consumer prices index measures the average change in prices of roughly 730 core goods and services over time, including transport, food, and medical care.
To do this, every month, a team of roughly 300 analysts visit 20,000 shops in 141 different locations recording around 180,000 price quotes in the process.
CPI replaced the old retail prices index measure of inflation as a national statistic at the turn of the millennium, but RPI is still used for some official calculations and some people prefer it as a long-run measure. You can check how prices have changed over the years with our inflation calculator.
The truth is, there’s no such thing as a single rate of inflation. Everyone will have their own because people buy different goods and services from an array of shops and sellers.
The changing price of dog food, for example, is not going to be relevant to someone who does not have a four-legged companion.
Instead, Britain’s national statisticians aim to create a representative basket of goods broadly reflective of the nation’s shopping habits.
This basket, which is used to calculate what we know as ‘the rate of inflation’, or the Consumer Prices Index, is updated once a year to reflect changing tastes.
For example, at the start of 2024, 16 items were added to the Consumer Prices Index and 15 items were removed.
Additions to the basket for 2025 included virtual reality (VR) headsets, men’s sliders, exercise mats, pre-cooked pulled pork, and fixed tariffs for domestic gas and electricity.
Removals from the basket included oven-ready joints, newspaper adverts and in-store cafeteria meals.
Inflation vs the base rate and savings
The Bank of England uses the rate of inflation to determine whether to raise or lower its base rate in the hope people will borrow or spend more. Last month, it opted to hold the base rate at 4 per cent.
The base rate affects how much interest savers can earn on their money. In general, savings rates rise when the base rate is rising, and fall when it is falling.
If the rate paid on savings is below the CPI, savers are almost certain to be losing money in ‘real’ terms.
To make matters worse, many savers are failing to make the best of a bad situation by leaving their savings languishing in accounts paying next to nothing.
Rates monitor Moneyfacts Compare is now urging savers to switch as the top savings rates are fluctuating and savers may be able to find a better deal with online providers.
That’s more like it: 1,364 general savings accounts now outpace CPI inflation
With the current rate of CPI now at 3.2 per cent, savers with cash in accounts such as these will be in essence shredding money.
Some easy-access accounts with big banks still pay less than 1 per cent, whilst plenty of people keep large amounts of money in their bank account, often earning absolutely nothing.
As an example, let’s say the rate of inflation comes in at 3.2 per cent this time next year. That means what costs someone £1,000 today will typically cost them £1,032 this time next year.
If they have £1,000 in a bank account today paying no interest, they’ll effectively be losing £32.
By stashing £1,000 in the best paying easy-access deal paying 4.35 per cent, they will be around £12 better off. Albeit, if inflation and easy-access rates remain the same.
Don’t leave your cash in the bank: £1,000 cash would drop in value to £858.73 after five years, with inflation at 3%. With inflation at 10%, it would only be worth £590.40 after five years
Savings accounts that currently beat inflation: 1,512
It should come a relief to savers that there are now 1,512 general savings deals that currently beat inflation.
The most important thing for savers to do at the moment is to find the best savings rate they can, and if that means switching they should be prepared to do this.
The closer your savings rate is to the rate of inflation, the less value your cash will lose over time. That’s why you should ensure that your money is getting the best interest rate possible.
In recent months, savers have faced a dilemma over whether to fix or wait for better rates to come along.
The advice to savers has been to keep on top of the changing market if they want to secure a competitive deal.
Caitlyn Eastell of Moneyfacts Compare says: ‘It’s as crucial as ever that savers now pay closer attention to how to get their money working its hardest. Inflation remains one of the biggest threats, however, fiscal drag also plays a major role.
‘The income tax threshold freeze could haul millions of consumers into higher tax brackets and subsequently receiving a surprise tax bill as their personal savings allowance is halved from £1,000 to £500.’
Caught in a trap: Keeping an eye on inflation is key to knowing how much your savings are being eaten away
This is Money says: Moving your money to a new savings account is much easier than many people think.
It can all be done online and setting up an account can often take less than 10 minutes.
So our advice is simple. Don’t be loyal to your bank or savings provider. Be proactive and hunt for the best rates using our independent best buy tables.
When it comes to choosing an account. It’s always worth keeping some money in an easy-access account to fall back on as and when required.
Most personal finance experts believe that this should cover between three to six months worth of basic living expenses.
Some easy-access deals, without any restrictions, pay over 4 per cent. If you’re getting anything less than this at the moment, consider switching to a provider that will give you these rates.
Those with extra cash which they won’t immediately need over the next year or two, could consider fixed-rate savings.
The best one-year fixed rate account pays 4.51 per cent and is offered by Kent Reliance, while the best two-year fix, also from Kent Reliance pays 4.42 per cent.
Savers should also consider using a cash Isa to protect the interest they earn from being taxed.
Savers can get a top easy-access cash Isa* from Trading 212 paying 4.52 per cent.
Charter Savings Bank is offering a one-year fixed rate Isa paying 4.3 per cent and the best two-year deal paying 4.2 per cent.
– Check out the best cash Isa rates here.
Rainy day fund: Most personal finance experts believe that this should cover between three to six months worth of basic living expenses
For those with spare cash who won’t need it for five years or more, investing it in the stock market may be the most sensible option to counter the inflation impact.
Money invested has outperformed money saved in four of the last 20 years, according to research by Janus Henderson.
A bad year might put some nervous investors off, but ultimately it won’t mask the fact that investing outperforms cash over the long term.
