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Inflation fell in March 2020 as savings rates tumble: where can you find the best account?

Find out how your savings account measures up to the top rates

Inflation fell in March 2020 as savings rates tumble: where can you find the best account?

Inflation fell to 1.5% in March 2020, according to the latest figures from the Office for National Statistics (ONS).

The Consumer Prices Index (CPI) measure of inflation is down from 1.7% in February 2020, partly due to falls in prices across motor fuels and clothing.

This comes just over a month after the Bank of England reduced the base rate to 0.1% on 19 March in order to help ease the impact of the coronavirus crisis on the economy. However, it’s also caused already ailing savings rates to fall even faster.

Here, Which? reveals why inflation has fallen and where you can find the top savings and Isa rates.


Why has inflation fallen?

The main factors that have caused inflation to decrease are reduced prices across clothing and footwear, when prices usually rise between February and March.

The change is likely due to the impact of the coronavirus; while prices were collected on 17 March, before the UK lockdown began, it’s thought that consumer behaviour had already changed due to things such as social distancing.

In addition, motor fuel prices fell; petrol prices decreased by 5.1p per litre between February and March, whereas prices rose during these two months in 2019.

The graph below shows how CPI inflation has varied since January 2015, using figures from the ONS.

The Bank of England has been tasked with keeping CPI inflation as close to 2% as possible.

It’s been below this target since August 2019.

Best savings rates that beat March inflation

The table below sets out the top rates for fixed-rate and instant-access cash Isas and savings accounts.

The links take you through to more details at Which? Money Compare, where available.

Account type Account AER Terms Does this account beat or equal March 2020 inflation?
Five-year fixed-rate savings account RCI Bank UK Five- Year Fixed-Term Savings Account 1.9% £1,000 minimum initial deposit. Yes
Five-year fixed-rate cash Isa Shawbrook Bank Five-Year Fixed-Rate Cash Isa 1.61% £1,000 minimum initial deposit. Yes
Four-year fixed-rate savings account RCI Bank UK Four-Year Fixed-Term Savings Account 1.8% £1,000 minimum initial deposit. Yes
Four-year fixed-rate cash Isa Punjab National Bank Four-Year Fixed Rate Cash Isa 1.35% £1,000 minimum initial deposit. No
Three-year fixed-rate savings account Vanquis Bank Three-Year Fixed-Rate Bond 1.8% £1,000 minimum initial deposit. Yes
Three-year fixed-rate cash Isa Shawbrook Bank Three-Year Fixed-Rate Cash Isa 1.52% £1,000 minimum initial deposit. Yes
Two-year fixed-rate savings account Bank of London & The Middle East Two-Year Premier Deposit Account 1.75% (EPR*) £1,000 minimum initial deposit. Yes
Two-year fixed-rate cash Isa Shawbrook Bank Two-Year Fixed Rate Cash Isa 1.48% £1,000 minimum initial deposit. No
One-year fixed-rate savings account Bank of London & The Middle East One-Year Premier Deposit Account 1.6% (EPR*) £1,000 minimum initial deposit. Yes
One-year fixed-rate cash Isas Post Office Online One-Year Fixed-Rate Cash Isa 1.3% £500 minimum initial deposit. No
Instant-access savings account Marcus by Goldman Sachs Online Savings Account 1.2% £1 minimum initial deposit. No
Instant-access cash Isa Shawbrook Bank Easy Access Cash Isa 1.25% £1,000 minimum initial deposit. No

*Expected Profit Rate. Source: Moneyfacts. Correct as of 21 April 2020; rates are subject to change.

There are currently seven accounts in our table that beat the March 2020 rate of inflation. However, to get these rates you’d have to commit to locking up your cash in a fixed-term savings account for at least one year, or in a fixed cash Isa for at least three years.

Only two of the accounts here accept a minimum initial deposit of less than £1,000, so those with smaller savings pots may find they’ll miss out on the top rates.

Two of the top rates are offered by Bank of London & The Middle East. As the accounts are sharia-compliant, they offer an expected profit rate (EPR) rather than an annual equivalent rate (AER).

This means that the rate is not guaranteed, although, at the time of writing, we’ve never heard of an instance where an Islamic bank has not delivered on its EPR in the UK.

Top instant-access account cuts

At this time of uncertainty, many savers are opting for instant-access accounts, rather than locking up their cash for several years.

But doing so could mean increasingly poor returns as some of the consistently best-rate accounts suffer rate cuts.

Marcus by Goldman Sachs and Saga Easy Access Savings Account (both provided by Goldman Sachs) have both sat at or around the joint top spot for months now.

When the Marcus account first launched to much fanfare in September 2018, it offered 1.5% AER – the top rate at the time. Since then, rates have gradually reduced.

On 17 April, it was announced that rates on both accounts would be cut again – this time to 1.2% AER, from 1.3% AER. Despite the rate reduction, the accounts still offer the top rate for easy-access savings.

The new rate is immediate for new customers but will come into force for existing customers from 7 May 2020.

Rates fall for lifetime Isas

Unfortunately, those saving for their first home or retirement won’t escape the rate cuts, as lifetime Isa interest rates have also been reduced – in some cases by 0.75%.

The table below shows how the interest rates have changed for the five cash lifetime Isas currently on the market.

Lifetime Isa  Previous AER Current AER Change
Moneybox cash lifetime Isa 1.4% 1.25% -0.15%
Nottingham Building Society 1.25% 1.25% No change
Paragon Bank 1.15% 1.15% No change
Newcastle Building Society 1.1% 0.35% -0.75%
Skipton Building Society 1% 0.35% -0.65%

Both Skipton Building Society and Newcastle Building Society have both cut their rates to just 0.35% AER.

Skipton was the first cash lifetime Isa to launch back in 2017 and had previously paid 1% – already the lower than newer cash lifetime Isas.

Moneybox has also reduced the rate on its cash lifetime Isa by 0.15%. It still offers the highest rate, but this is shared with Nottingham Building Society, which along with Paragon Bank is one of just two accounts that hasn’t reduced its AER.

Nottingham Building Society has committed to freezing its interest rates for three months from the beginning of April.

Note that none of these accounts beat the current rate of inflation.

Save with a Which? Recommended Provider

You can search through hundreds of Isas and savings accounts with Which? Money Compare.

The comparison site details the interest rate and terms of an account, as well as how it rated in our unique savings survey. It also lists the accounts that have been named a Which? Recommended Provider.

Which? Recommended Providers are companies that have both been rated highly by customers and offer products that meet the exacting standards of our expert researchers.

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? Money Compare is a trading name of Which? Financial Services Limited.

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