Inflation fell to 2% in May 2019, according to the latest figures released this morning from the Office for National Statistics (ONS), mainly due to lower transport fares and falling car prices.
This is down from April, where inflation measured 2.1%.
While this inflation drop means that popular goods and services are more expensive than in May 2018, the change will also have an effect on your cash savings. If you money is earning less than 2% interest, you may see your savings lose value in real terms.
This is particularly worrying considering recent findings that 26% of Brits have savings pots that would last less than a month if they were forced to use them for all of their outgoings, according to research from Yorkshire Building Society. In fact, 11% of those asked expected their savings to last just a few days.
With so many in a potentially precarious position, it's more important than ever to make sure that your savings - however large or small - are growing as much as possible.
Here, we reveal the reasons behind the inflation rate change, and where to find accounts to beat it.
To beat the current rate of inflation, you'd need to lock your money away for at least one year in a savings account, or four years in a cash Isa.
|Five-year fixed-rate savings account||Gatehouse Bank five-year fixed-term deposit||2.75% (EPR*)||£1,000 minimum initial deposit|
|Five-year fixed-rate cash Isa||Metro Bank five-year fixed-rate cash Isa||2.1%||£1 minimum initial deposit|
|Four-year fixed-rate savings account||Bank of London & The Middle East four-year premier deposit account||2.5% (EPR*)||£1,000 minimum initial deposit|
|Four-year fixed-rate cash Isa||United Trust Bank cash Isa four-year bond||2.05%||£15,000 minimum initial deposit|
|Three-year fixed-rate savings account||Gatehouse Bank three-year fixed-term deposit||2.55% (EPR*)||£1,000 minimum initial deposit|
|Three-year fixed-rate cash Isa||Dudley Building Society three-year fixed-rate cash Isa||1.91%||£100 minimum initial deposit|
|Two-year fixed-rate savings account||Al Rayan Bank 24-month fixed-term deposit||2.42% (EPR*)||£1,000 minimum initial deposit|
*Expected Profit Rate. Source: Which? Money Compare. Correct 19 June 2019.
Before opting for a new savings or cash Isa account, there are a few things you need to ask yourself:
With the exception of Coventry Building Society's cash Isa, top-rate savings account rates beat their cash Isa competition for every other term. But it's not all about the rate.
Any money that's saved within a cash Isa wrapper is given a tax-free status. No matter how much savings interest you earn, you'll never be charged tax on it.
Savings interest earned in savings accounts, however, is taxable. The means that few people have to worry about this, as it enables basic-rate taxpayers to earn up to £1,000 in savings interest without being taxed and higher-rate payers to earn up to £500.
However, if you're an additional-rate taxpayer, you don't receive any personal savings allowance, so a cash Isa may be highly appealing.
The ONS identified the main factors behind the decrease in inflation to be a decrease in transport prices - fares fell by 3.8% between April and May this year, mainly due to the Easter holidays falling in the middle of April. There was also a downward contribution from alcoholic beverages and tobacco.
These lower prices were countered by games and toys becoming more expensive (particularly computer games), as well as smaller price rises across restaurants and hotels, non-alcoholic drinks and food.
The graph below shows how CPI inflation has changed since 2013, with figures sourced from the ONS.
The Bank of England aims to keep inflation as close to 2% as possible, with the rate hovering close to this benchmark over recent months.
Inflation last peaked at 3.1% in November 2017, at which point no savings or cash Isa accounts could beat it - so things are much better for savers now.
By contrast, the inflation rate hit a two-year low of 1.8% in January 2019.
CPI inflation tracks the prices of around 700 popular goods and services held in an imaginary shopping basket.
The figure released each month shows how the prices of everything in the basket compares with the same time the year before.
So, taking this month as an example, if you had bought everything in the shopping basket last year, it would cost you 2% more to buy the same things this year.
If your rate of interest doesn't keep up or exceed the rate of inflation, your savings will lose value, as your cash will be able to buy fewer things than in the year before.
So, in order to see your savings grow, you need to find an account that beats the rate of inflation.
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.
For longer-term fixed-rate savings, Leeds Building Society offers a paying 2% AER, and a that pays 1.87% AER. Both require a minimum initial deposit of £100, and the provider has been highly rated for its interest rate information.
And if you're after the flexibility of instant-access accounts, there's the aforementioned easy access Isa from Coventry Building Society, paying a market-leading 1.5% AER. Customers valued many areas of the provider's customer service, particularly the clarity of its statements.
There's also the Kent Reliance easy access account, which gives 1.3% AER and requires £1,000 to open it.
Please note that the information in this article is for information purposes only and does not constitute advice. Please refer to the particular terms & conditions of a provider before committing to any financial products.
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.