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Compare and chooseInflation rises to 3% – which savings accounts can beat it?
The cost of flying, fuel and food has driven inflation to its highest level in 10 months
A surge in air fares and food prices pushed inflation from 2.5% to 3% in January, according to the latest Office for National Statistics (ONS) data.
The increase in the Consumer Prices Index (CPI) figure was sharper than expected, and savers should check if their nest eggs are keeping up with rising prices.
Read on to find out which accounts offer the best returns on your money, and for more on the reasons behind the rise in inflation.
The best inflation-beating savings accounts
Our analysis of Moneyfacts data shows the proportion of savings accounts that beat inflation is falling.
There are currently 1,757 savings accounts (82% of all products) that offer rates higher than 3%. This includes instant access and variable-rate deals, fixed-rate bonds and Isas. This figure is down from last month, when 88% of accounts beat inflation.
Despite the overall drop, the picture still looks better than this time two years ago. In February 2023, when January inflation stood at 10.1%, there were no savings deals that beat it.
This table shows the top rates currently available on instant access and fixed-rate cash Isas and savings accounts, ordered by term.
| Instant access | Cahoot | 4.75% | 61% | £1 | Internet | Monthly, yearly |
| Instant access Isa | Chip | 5.03% | n/a | £1 | Mobile app | Monthly |
| One-year fixed rate | The Co-operative Bank | 4.62% | 67% | £1,000 | Branch, internet | Monthly |
| One-year fixed rate Isa | OakNorth Bank | 4.46% | n/a | £1 | Internet, mobile app | Monthly |
| Two-year fixed rate | Secure Trust Bank | 4.61% | n/a | £1,000 | Internet | Yearly |
| Two-year fixed rate Isa | Hodge Bank | 4.41% | n/a | £1,000 | Internet | Monthly, anniversary |
| Three-year fixed rate | Secure Trust Bank | 4.63% | n/a | £1,000 | Internet | Yearly |
Table notes: rates sourced from Moneyfacts on 19 February 2025 and based on a balance of £1,000. Provider customer score is based on savers' overall satisfaction with the brand and how likely they are to recommend it to others. n/a means sample size was too small for us to generate a provider score (a) 4.75% interest on balances up to £3,000.
How savings track against inflation
It's important to choose an account with a rate above the current CPI figure. If the interest rate on your account is below inflation, your savings will effectively lose value over time.
This table shows how average savings rates compare to inflation since August 2020, using data from Moneyfacts:
As you can see, average rates on one-year and longer-term bonds have beaten inflation since October 2023. But this month's rise in the CPI figure means the average instant-access rate is below inflation for the first time since March last year.
What's happening to savings rates?
Savings rates have been falling steadily since last summer. This is in part down to a series of cuts to the Bank of England's base rate. A base rate cut matters to savers because banks often respond by reducing the interest they pay on savings accounts.
Although there was a slight uptick in average rates for all types of no-notice accounts at the beginning of this year, many providers have begun cutting rates again since the Bank's decision to cut the base rate further on 6 February.
Variable rate products, such as instant-access accounts, are usually hit first by base rate changes. The top rate for this type of account, for example, has dropped from 4.86% AER to 4.75% since the last inflation announcement on 15 January.
There is some good news, however. Cash Isa rates are on the up, as providers seek to entice savers looking to use up their tax-free allowances before the end of the financial year. Instant-access Isas have seen the biggest rate rises so far, increasing from 4.9% AER to 5.03%.
We are likely to see Isa rates get another boost in April when the new tax year begins and allowances are renewed.
- Find out more: best savings accounts 2024
Why is inflation rising?
The biggest drivers behind January's inflation rise were transport costs and food prices, data from the ONS shows.
Air fares, in particular, helped push the CPI figure to its highest level since March 2024. Prices for this sector usually jump in December, then plummet in January, but the ONS says this year's drop was shallower than usual.
The cost of filling up your car at the pump also went up, with petrol and diesel prices both rising. Food and soft drink prices spiked too, while the government's decision to charge VAT on private school fees from January also led to a rise in inflation.
While the CPI figure is significantly lower than the peak of 11.1% seen in October 2022, it remains above the Bank of England's target of 2%.
It's important to remember, too, that even when inflation is at the Bank of England's target level, this doesn't mean prices are going down; it just means they're rising at a slower rate than before.
