The first inflation figures for 2018 have been revealed – in January CPI inflation remained at 3.0%, unchanged from December 2017. And, given the current state of the savings market, not a single account or Isa can beat it.
Which? explains what this means for your finances, and how you can protect the value of your savings.
How does January 2018 inflation fit with the recent trend?
The latter part of 2017 saw a rise in inflation, rising to 3.0% in October and peaking at 3.1% in November, before levelling off at 3.0% in December.
The latest January 2018 figure holds steady at 3.0%.
However, in comparison to January 2017 – when inflation stood at 1.8%, there has still been a significant increase.
CPI measures the prices of roughly 700 everyday goods and services and records whether the prices rise or fall compared with what the goods cost in the same month of the previous year.
The types of goods are given different proportional weightings.
Why has inflation remained the same?
The main contributing factors to January’s inflation figure were a downward contribution from motor fuels – with prices rising less than they did a year ago.
Bu this was offset by prices for recreational and cultural goods and services – specifically, admissions to attractions such as zoos and gardens – where prices fell less than they did a year ago.
There was also a smaller downward effect from food – particularly meat products – and non-alcoholic drinks, which have seen a slight price fall since December 2017.
Overall, these price fluctuations evened out to leave inflation unchanged.
What does the current inflation rate mean for your finances?
The inflation rate indicates that the cost of popular goods and services has increased 3.0% since the same time last year – so if you were to go on the same trip to the shops you’d be left with less money in your wallet.
While inflation has fallen slightly since November 2017, it is relatively high. If wages don’t increase inline with inflation, many people will feel it is more difficult to afford the same things they were buying last year.
In addition, the fact that inflation has not fallen also means your savings are at risk of losing value in real terms. For your savings to grow, you’d need an account with an interest rate of 3.0% or more.
Can any savings accounts beat inflation?
Currently, there are no savings accounts that can beat the current rate of inflation. See the table below for the highest rates currently available.
- Find out more: How to find the best savings account
How else can you help your savings beat inflation?
Current accounts can sometimes pay higher rates.
The Nationwide FlexDirect account offers 5% interest on balances up to £2,500 for 12 months, with a recommend a friend scheme that can see existing customers and their friends both receive £100 when switching. You have to have at least £1,000 paid into the account each month, and transfer two direct debits. After the first 12 months, the AER falls to 1%, with 0% interest paid on balances over £2,500.
TSB’s Classic Plus account offers 3% interest paid monthly on balances up to £1,500 – as long as you pay in a minimum of £500 a month, and register for internet banking, and paperless statements and correspondence. You can also get £10 cashback every month – £5 for having two direct debits from the account each month, and £5 if you spend with your debit card at least 20 times per month.
Tesco Bank also offers 3%, which it pays on balances up to £3,000 when you pay out at least three direct debits and get at least £750 a month paid in. Plus, you’ll receive two Clubcard points for every £1 you spend on the debit card in Tesco – twice as many points as you receive with a normal Clubcard.
Alternatively, if you’re comfortable with facing a higher risk in return for potentially higher rewards, it may be worth investing your money.
Stocks & shares Isas allow you to put money into a range of different investments, and many banks offer different options based on how much risk you’re willing to take.
- Find out more: What is a stocks and shares Isa?
Note that when investing your money there is always the risk that you might not get back the same value of money that you initially put in.
If you’re not sure whether investing is for you, see our guide: Are you ready to invest?