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Listen nowCPI inflation jumps to 11.1% in October - is it time to get a new savings account?
Energy prices cause inflation to rise further, hitting a 41-year high
Inflation rocketed to 11.1% in October 2022, according to the latest figures from the Office for National Statistics (ONS). At the same time, collective savings rates rose for the ninth consecutive month in November, but they still can’t beat inflation.
The Consumer Prices Index (CPI) measure of inflation jumped from 10.1% in September, and it's the seventh month in a row that it's been above 9%. That's despite the Bank of England increasing the base rate eight times since December 2021 in a bid to bring inflation under control.
The CPI tracks the cost of an imaginary ‘shopping basket’ of around 700 popular goods and services. In October, energy prices were the main drivers behind the increase.
Here, Which? explains why the inflation rate has risen and how it compares to the top-rate savings accounts and cash Isas. We’ll also share tips for tackling the rising cost of living.
Why has inflation risen?
Prices are rising at their fastest rate in 41 years and energy prices are the main driver behind this month's rise in inflation. The ONS said gas prices had risen by nearly 130% over the year, while electricity costs had soared by 66%.
That's despite the Energy Price Guarantee, which caps the average energy unit rates from October 2022 for the six months until April 2023 . Without the help, the ONS says the inflation figure would have been as high as 13.8%.
Increases in the cost of food and non-alcoholic beverages are also pushing up inflation. Prices went up by 16.2% in the year to October, up from 14.5% the month before. Milk, cheese and eggs saw particularly big price increases.
However, average petrol prices fell on the month. Overall, fuel prices fell by 0.5% between September and October 2022, although prices at the pump were still 22.2% more expensive than they were in October 2021.
These latest figures come ahead of tomorrow's Autumn Statement, in which Chancellor Jeremy Hunt is expected to announce sweeping tax rises and spending cuts to get the economy under control and drive down inflation.
The graph below shows how inflation has changed since October 2018.
Top-rate cash Isas and savings accounts
This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| Account type | Account | AER | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Tandem Bank 5 Year Fixed Saver | 5% | £1 minimum deposit |
| Five-year fixed-term cash Isa | Furness Building Society 5 Year Fixed Rate ISA | 4.31% | £1,000 minimum deposit |
| Four-year fixed-term savings account | Gatehouse Bank 4 Year Fixed Term Woodland Saver | 4.9% EPR* | £1,000 minimum deposit |
| Four-year fixed-term cash Isa | Gatehouse Bank 4 Year Fixed Term Woodland Cash ISA | 4.2% EPR* | £1,000 minimum deposit |
| Three-year fixed-term savings account | Tandem Bank 3 Year Fixed Saver | 4.9% | £1 minimum deposit |
| Three-year fixed-term cash Isa | UBL UK 3 Year Fixed Rate Cash ISA | 4.25% | £2,000 minimum deposit |
| Two-year fixed-term savings account | RCI Bank UK Fixed Term Savings Account | 4.85% | £1,000 minimum deposit |
Source: Moneyfacts. Correct as of 15 November 2022, but rates are subject to change. *The accounts from Al Rayan Bank and Gatehouse Bank are Sharia-compliant, and so pay an expected profit rate (EPR) as opposed to an annual equivalent rate (AER).
As you can see, none of the top-rate savings accounts currently keep up with inflation.
Nevertheless, savings and cash Isa rates have risen steeply recently. This week, the latest Moneyfacts data shows that average rates across the savings spectrum rose for the ninth consecutive month for the first time since their records began in February 2007.
For example, the average easy-access rate rose to 1.16% AER, going above 1% for the first time since August 2012. The average longer-term fixed bond rose to 3.77%, the highest it has been since since February 2010.
Rates for easy-access ISAs also rose month-on-month to 1.26% - the highest they have been since November 2013. And longer-term fixed ISA rates rose to 3.44%, going above 3% for the first time since October 2012.
Interest rises for savings accounts is in part tied to successive base rate hikes by the Bank of England (BOE). With the base rate currently at 3%, savers' deposits now offer a cheaper source of bank funding than the BOE.
- Find out more: how to find the best savings account
How does CPI inflation affect your savings?
CPI inflation is the speed at which the prices of the goods and services bought by households rise or fall. It tracks the costs of a shopping basket of around 700 popular goods and services bought by households – from ham to hotel stays.
The figure – which is provided by the ONS each month — shows how much prices have changed compared with the same month of the previous year. For example, if you had bought all the same items in the basket in October 2021 and bought them all again the same month in 2022, you could expect your shop this year would be 11.1% more expensive.
When you keep money in your bank, you'll likely be earning interest, which should help balance out the effects of inflation. But if your cash isn't growing in interest at the same rate of inflation or more, it will effectively lose value because you'll be able to buy less with it. That's why you should ensure that your money is making the best return possible – even when savings rates are low.
- Find out more: how to find the best cash Isa
How to cut costs when prices are rising
Soaring energy bills are the biggest driver of this month's inflation rise, and as the weather gets colder those costs are likely to rise even more. But there are some small changes you can make which can add up to big annual savings.
Which? has lots of great advice online for cutting energy costs. Our handy guide offering 10 ways to reduce energy bills includes tips on making home improvements such as insulation and draught proofing, adjusting your boiler's flow temperature and ways to use appliances more efficiently.
We also have advice on how to get the best energy deal, ways to switch provider and what to do if you are struggling to pay your energy bills.
Food prices are also squeezing households, so switching supermarkets could help; our latest research has found the cheapest supermarket in October, while we're also keeping track of all the ways supermarkets and shops are helping customers with the cost of living.
If you are worried about how you will afford the Christmas shopping this year, we've rounded up ways to save money on presents, food and travel in the festive period.
Get further help with the cost of living
Experts from across Which? have compiled the latest news and advice that can help you navigate the cost of living crisis. Check out our free advice and podcasts to help ease the squeeze on household bills, grocery shopping and more.
