UK inflation as measured by the Consumer Prices Index (CPI) has jumped to 3.1% in November according to official figures, the highest level since March 2012.
The Office for National Statistics (ONS) says the cost of air fares and the rising price of recreational goods like computer games were behind the increase.
Inflation measures the rising cost of around 700 everyday goods and services.
It’s vital that your money keeps up with the rate of change or it will lose purchasing power over time.
Inflation is especially important to factor into the return your savings are getting, as this is money you are planning to use in the future so it needs to keep up with rising prices.
In order to fight against the eroding effects of inflation the majority of savers that haven’t maxed out their personal savings allowance need to find an account paying 3.1% or more.
Can any savings accounts beat inflation?
At the moment no traditional savings account or cash Isa can beat inflation, as you can see from the table below.
|Top paying rate|
|Five-year fixed-rate bond||2.51%|
|Three-year fixed-rate bond||2.25%|
|Five-year fixed-rate cash Isa||2.20%|
|Two-year fixed-rate bond||2.06%|
|One-year fixed-rate bond||1.86%|
|Three-year fixed-rate cash Isa||1.85%|
|Two-year fixed-rate cash Isa||1.72%|
|One year fixed-rate cash Isa||1.41%|
|Easy access account||1.30%|
|Easy access cash Isa||1.30%|
Source: Which? Money Compare
So where else can savers look to protect cash from inflation?
Use a current account that pays interest
Some current accounts pay inflation-beating rates of in-credit interest.
The Nationwide FlexDirect account, for example, offers 5% on balances up to £2,500 for 12 months. To qualify for the interest you just need to be able to fund the account with £1,000 a month.
Alternatively, the Tesco Bank Current Account will pay 3% on balances up to £3,000 until April 2019 as long as you deposit £750 a month and have three direct debits set up.
The TSB Classic Plus also pays 3% but on balances up to £1,500. To be eligible you just need to fund the account with £500 a month, sign up for internet banking and agree to paperless statements.
Try investing for the chance of better returns
Investing could help your money beat inflation over the long term.
However, the value of your investment can go down as well as up, so it’s only for those that can afford to take the risk.
If you think you are ready take a look at our beginner’s guide to investing for more.
Which? Limited is an Introducer Appointed Representative of Which? Financial Services Limited, which is authorised and regulated by the Financial Conduct Authority (FRN 527029). Which? Mortgage Advisers and Which? Money Compare are trading names of Which? Financial Services Limited.