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How will the inflation drop affect your savings?

Find out if any accounts can beat it

It was announced this morning that the April 2018 annual rate of UK CPI inflation fell to 2.4%. This is down from 2.5% in March.

The CPI inflation rate is calculated by the Office for National Statistics (ONS), comparing the prices of more than 400 goods and services against the previous year.

Which? explains how the latest inflation rate could affect your savings, and where you can find the best accounts to grow your money.


Why has inflation gone down?

The ONS says the largest downward contribution in April came from transport fees – particularly air fares. This is partly to do with Easter falling at the beginning of the month, whereas it was in the middle of April in 2017.

Clothing and footwear also had a small downward effect, as did food and alcohol.

These were balanced by price rises in communications, as the prices of telephone equipment and services rose by 0.4% compared with a fall of 1% last year. This was almost entirely from bundled services that tend to include internet access, TV and phone services.

The graph below shows how inflation has fluctuated since September 2013.

Following a peak of 3.1% in November 2017, inflation has steadily dropped throughout 2018.

While it is still above the ideal rate of 2%, the downward trend means that as long as rates of pay increase in line with inflation, the cost of living should start to feel more affordable.

Can any savings accounts beat inflation?

The Which? Money Compare comparison tables let you search hundreds of savings and Isa accounts to help you choose the right deal for your circumstances.

There are some savings accounts that pay interest above the inflation rate, but they all involve locking your money away in a fixed-rate savings account or cash Isa for several years.

You won’t be able to access the funds for the duration of the term. If you do have the option to withdraw, there will usually be a withdrawal penalty that means you won’t benefit from the full interest paid.

The table below shows the top rates for cash Isas and savings accounts.

While there are a few options that outstrip inflation, many of the best savings rates have disappeared in the last month or so.

In anticipation of an expected Bank of England base rate rise in May, several savings providers cut their rates in April, or withdrew their top-rate products altogether, research from Moneyfacts has shown.

Moneyfacts found that since the start of April, six top deals have been withdrawn from the market completely, and a further 10 have reduced the AER rates. Some accounts had rates cut several times in the run-up to the base rate announcement – the Tesco Bank easy access saver was cut three times between 6 April and 3 May.

The base rate was ultimately kept at 0.5% at May’s meeting, yet savers still have worse rates to choose from.

But despite these changes, there are still good deals to be found.

Save with Which? Recommended Providers

Which? Recommended Providers are companies that have been rated highly by the respondents to our unique customer survey and have products that meet the high standards of our researchers.

For savings accounts, RCI Bank Freedom Savings Account offers unlimited instant access with 1.3% AER on balances between £100 and £1m, with interest paid monthly.

It has an overall customer score of 77%, and it’s the only Which? Recommended savings provider with five stars for customer service and regular contact. However, it’s worth noting that this account does not have FSCS protection – but deposits of up to €100,000 are protected by the French deposit guarantee scheme.

The provider also has two-year and three-year fixed-term bonds, with AERs of 1.91% and 2.31% respectively. The three-year fixed-rate bond offers the top rate in this category.

Other high scorers include First Direct – its Regular Saver Account offers 5% AER when you make 12 regular monthly deposits of between £25 and £300 over the course of a year.

It scored 74% overall, with five stars for regular contact and customer service.

In terms of Isas, the Coventry Building Society Easy Access Isa is a Which? Recommended Provider, with a 70% score. There’s an AER of 1.25% on balances over £1 with interest paid annually, and its customer service received the top score.

For more options, you can use Which? Money Compare to find the right savings account for your circumstances.

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.

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