The annual rate of UK CPI inflation in June 2018 stuck at 2.4%, unchanged from May, the Office for National Statistics (ONS) revealed this morning.
As the cost of goods and services fluctuate, what you’re able to buy with your cash also varies. But by finding the best possible interest rate for your savings, you can make sure your money continues growing.
Which? explains how today’s inflation rate could affect your savings, and where you can find the best rates.
What’s caused inflation to stay the same?
The CPI inflation index uses an imaginary shopping basket of more than 400 goods and services, and compares how the prices differ to the same time last year. So, in June 2018, the prices of these items were 2.4% more expensive than in June 2017, on average.
According to the ONS, June’s inflation rate has mainly been a result of rising prices for motor fuels and domestic gas and electricity, counteracted by dips in the prices of clothing, games, toys and hobbies, particularly computer games.
The rate has now held steady at 2.4% since April 2018. Before this, inflation had been on a steady decline, following a rise to 3.1% back in November 2017.
While the current figure means your wallet should feel less of a pinch than in November, prices have still crept up, which could prove difficult if wages haven’t increased at the same rate.
Can any savings accounts beat inflation?
If your savings don’t grow faster than the rate of inflation, you’ll be able to buy less with your cash over time – so to prevent your savings losing value in real terms, you should look for an inflation-beating interest rate.
A number of popular accounts have cut their rates recently, while others have been boosted, which can make deciding where to save a confusing process.
Some people may be disappointed to hear that NS&I’s Direct Isa rate will be slashed from 1% AER to 0.75% AER from 24 September.
We recently wrote about those with small savings deposits having fewer accounts to choose from. As this one only requires a minimum £1 initial deposit, this could be a blow for those wanting seeking to grow their cash will retaining access.
Elsewhere, a number of new notice accounts with appealing rates are now available.
Secure Trust Bank has launched a new 180-day notice account that offers 1.78% AER (the top rate for this notice period), while OakNorth has increased its notice account rates by 0.37%.
The best rates, however, are still being offered by fixed-rate accounts.
These, however, involve locking your money away for a year or more, so you should factor that inconvenience into your decision.
The table below shows the fixed-rate accounts currently offering the best rates, according to Which? Money Compare. The comparison tables let you search hundreds of savings and Isa accounts to help you choose the right deal for your circumstances.
|Account type||Account||AER||Minimum initial deposit|
|5-year fixed-term savings account||Gatehouse Bank 5 Year Fixed Term Deposit||2.68% (EPR*)||£1,000|
|5-year fixed-term cash Isa||Shawbrook Bank 5 Year Fixed Rate Cash Isa Bond||2.3%||£5,000|
|4-year fixed-term savings account||Secure Trust Bank 4 Year Fixed Rate Bond||2.51%||£1,000|
|4-year fixed-term cash Isa||Hodge Bank 4 Year Fixed Rate Cash Isa||1.8%||£1,000|
|3-year fixed-term savings account||BM Savings 3 Year Fixed Rate Bond||2.34%||£1|
|3-year fixed-term cash Isa||Shawbrook Bank 3 Year Fixed Rate Cash Isa Bond||1.85%||£5,000|
|2-year fixed-term savings account||BM Savings 2 Year Fixed Rate Bond||2.2%||£1|
|2-year fixed-term cash Isa||Al Rayan Bank 24 Month Fixed Term Deposit Cash Isa||1.8% (EPR*)||£1,000|
|1-year fixed-term savings account||Atom Bank 1 Year Fixed Saver||2.05%||£50|
|1-year fixed-term cash Isa||Al Rayan Bank 12 Month Fixed Term Deposit Cash Isa||1.6% (EPR*)||£1,000|
Source: Which? Money Compare. Correct July 2018. *Expected Profit Rate.
As the table shows, the only rates that currently beat inflation are offered on longer-term fixed-rate accounts.
Most also require minimum initial deposits of £1,000 or more, which may be out of reach for some people.
Currently, savings accounts offer much higher rates than cash Isas – but remember that all funds held in an Isa are tax-free, whereas interest earned in a savings account will be taxed if it exceeds your personal savings allowance.
- Find out more: How to find the best cash Isa
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.
If you’re looking for a fixed-term savings account, RCI Bank has several options, all of which require a minimum initial deposit of £1,000.
Coventry Building Society is another Which? Recommended Provider. Its Fixed Bond (180) is a one-year fixed-rate savings account that gives 1.5% AER on balances between £1-£250,000.
It also has a Limited Access Saver that offers 1.35% AER for the first 12 months. But, as its name suggests, you are not free to take out money whenever you like. To benefit from this rate you are limited to three withdrawals a year.
Any further withdrawals will result in a penalty of 50 days’ interest on the amount being taken out.
- Find out more: How to find the best savings account
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.