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20 May 2020

Inflation fell sharply in April 2020 as savings rates continue to decline: how to find the best accounts

Find out how to make your savings work harder

Inflation plummeted to 0.8% in April 2020, according to the latest figures from the Office for National Statistics (ONS) - its lowest rate since August 2016.

The Consumer Prices Index (CPI) measure of inflation is down from 1.5% in March 2020, partly due to the price of motor fuels and transport costs being cheaper than they were this time last year.

This comes just over two months after the Bank of England reduced the base rate to 0.1% on 19 March in order to help ease the economic impact of the coronavirus crisis. However, it's also caused rates to fall in an already dwindling savings market.

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

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Why has inflation fallen?

The main factors behind April's inflation decrease are dramatic reductions to petrol and diesel prices; petrol prices fell by 10.4p per litre between March and April 2020, while diesel fell by 7.8p per litre.

Transport is also cheaper than it was in April 2019 - possibly due to the timings of Easter pushing up prices last year.

Cheaper clothing and footwear prices also contributed to the inflation drop.

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, but April 2020 is the first time inflation has fallen below 1% since October 2016.

Best savings rates that beat April inflation

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

Account typeAccountAERTermsDoes this account beat or equal April 2020 inflation?
Five-year fixed-rate savings accountGatehouse Bank Five-Year Fixed-Term Deposit1.85% (EPR*)£1,000 minimum initial deposit.Yes
Five-year fixed-rate cash IsaPunjab National Bank Five-Year Fixed-Rate Cash Isa1.4%£1,000 minimum initial deposit.Yes
Four-year fixed-rate savings accountBank of London & The Middle East Four-Year Premier Deposit Account1.7% (EPR*)£1,000 minimum initial deposit.Yes
Four-year fixed-rate cash IsaPunjab National Bank Four-Year Fixed-Rate Cash Isa1.35%£1,000 minimum initial deposit.Yes
Three-year fixed-rate savings accountGatehouse Bank 3 Year Fixed Term Deposit1.75% (EPR*)£1,000 minimum initial deposit.Yes
Three-year fixed-rate cash IsaMetro Bank Three-Year Fixed-Rate Cash Isa1.3%£1 minimum initial deposit.Yes
Two-year fixed-rate savings accountBank of London & The Middle East Two- Year Premier Deposit Account1.6% (EPR*)£1,000 minimum initial deposit.Yes

*Expected Profit Rate. Source: Moneyfacts. Correct on 19 May 2020; rates are subject to change.

All of the accounts in our table exceed the April 2020 rate of inflation.

Usually, it follows that the longer you lock up your money, the higher rate of interest you'll receive - but this isn't the case here. Al Rayan Bank's two-year fixed cash Isa offers a higher rate than the top three and four-year accounts and matches the rate on the highest five-year cash Isa fix.

More than half of the top rates are offered by Islamic banks - including Al Rayan Bank, Bank of London & The Middle East and Gatehouse Bank. As the accounts are Sharia-compliant, they offer an expected profit rate (EPR), rather than an annual equivalent rate (AER).

This means the advertised rate is not guaranteed, but we've never heard of an instance where an Islamic bank has not delivered on its EPR in the UK.

One-year average rates fall below 1%

While our table shows top rates of 1.5% and 1.2% for one-year fixed savings accounts and cash Isas respectively, the average rates have fallen below 1%.

According to data from Moneyfacts, average rates on one-year fixed savings accounts are currently 0.99%, down from 1.09% just a month ago. In March, the average one-year savings rate was 1.15%.

It's even worse for one-year fixed-rate cash Isas, which currently have an average interest rate of 0.91%. This is down from 1.04% in April - a steeper drop of 0.15%. In March, the average rate was 1.14%, so it seems that the decline is accelerating.

However, bear in mind that while cash Isa rates are often lower than their savings counterpart, they have the added benefit of being tax-free. In a savings account, any savings interest you earn is taxable if it exceeds your personal savings allowance.

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.