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Inflation falls to 10.1% in January 2023 - is it time to switch your savings?
Find out what's behind inflation slowing, and where to find the best savings
rates
Inflation decreased to 10.1% in January 2023, according to data from the Office for National Statistics (ONS), partly due to cheaper passenger transport and motor fuels.
The Consumer Prices Index (CPI) measure of inflation, which tracks the cost of an imaginary 'shopping basket' of around 700 popular goods and services, is down from 10.5% in December 2023.
Here, Which? explains why the inflation rate has fallen, and how it compares to the top-rate savings accounts and cash Isas. We also share tips for tackling the rising cost of living.
Why has inflation fallen?
The main reason inflation eased up a bit in January was down to cheaper prices for motor fuels and passenger transport - particularly air fares and coach fares. Prices for restaurants and hotels were also cheaper when compared to the same time last year.
However, there were several price rises that meant inflation was kept in double figures - namely rising prices for alcoholic drinks and tobacco.
The graph below shows how inflation has changed since January 2019:
The Bank of England’s target is to keep inflation as close to 2% as it can. But it hasn’t been that low since July 2021. Before that, inflation was very low. It was below 2% from August 2019 to April 2021, falling to a low of 0.2% in August 2020 due to the pandemic’s impact.
And remember, a decrease in the inflation figure doesn't mean mean prices will fall as well – it merely shows they are rising at a slightly slower rate.
Best savings rates
The table below shows the top rates for fixed-term and instant-access cash Isas and savings account, ordered by term.
| Account type | Account | AER | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Isbank 5-Year Fixed-Term Deposit | 4.5% | £1,000 minimum initial deposit. Only available from Raisin UK. |
| Five-year fixed-term cash Isa | Gatehouse Bank 5-Year Fixed-Term Woodland Cash Isa | 4.2% (EPR*) | £1,000 minimum initial deposit |
| Four-year fixed-term savings account | Union Bank of India (UK) Ltd 4-Year Fixed-Rate Deposit | 4.45% | £1,000 minimum initial deposit |
| Four-year fixed-term cash Isa | Gatehouse Bank 4-Year Fixed Term Woodland Cash Isa | 4.2% (EPR*) | £1,000 minimum initial deposit |
| Three-year fixed-term savings account | Sensible Savings 3-Year Fixed-Rate Bond | 4.4% | £5,000 minimum initial deposit |
| Three-year fixed-term cash Isa | Gatehouse Bank 3-Year Fixed-Term Woodland Cash Isa | 4.2% (EPR*) | £1,000 minimum initial deposit |
| Two-year fixed-term savings account | Union Bank of India (UK) Ltd 2-Year Fixed-Rate Deposit | 4.35% | £1,000 minimum initial deposit |
Source: Moneyfacts. Correct as of 14 February 2023, but rates are subject to change. *The accounts from Gatehouse Bank are Shariah-compliant products and so pay an 'expected profit rate' (EPR) as opposed to an 'annual equivalent rate' (AER).
As the table shows, no accounts can beat or equal the current rate of CPI inflation - however, according to Moneyfacts data, rates are still on the rise - particularly when it comes to instant-access accounts.
The average rate for instant-access savings accounts hit 1.74% in February, up from 1.56% in January. These accounts offered an average of just 0.22% in February 2022.
Similarly, instant-access cash Isas are up to 1.85% this month, a rise of 0.19% since January (when they were at 1.66%), having risen from 0.26% this time last year.
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 tuna to train fares.
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'd bought all the same items in the basket in January 2022 and bought them all again the same month in 2023, you could expect your shop this year would be 10.1% more expensive.
When you keep money in a savings account, you'll likely be earning interest, which should balance out the effects of inflation. 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
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Listen nowHow to cut costs when prices are still high
While the price of motor fuels has fallen compared to what it was in January 2022, it can still be expensive to fill up your car. Our guide on how to save fuel is full of money-saving tips for drivers.
Following huge price increases to basic food items, we've come up with lots of ways to spend less at the supermarket.
Our Affordable Food For All campaign is calling on the big supermarkets to take action and make a real difference to communities across the UK – sign the petition to encourage your supermarket to take action.
Get further help with the cost of living
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