Inflation rose to 2.1% in May 2021, according to the latest figures from the Office for National Statistics (ONS) - partly due to price rises for clothing, motor fuels, games and recording media.
The Consumer Prices Index (CPI) measure of inflation is up from 1.5% in April 2021 - when it had also jumped from 0.7% in March.
CPI inflation tracks the costs of a 'shopping basket' containing around 700 popular goods and services.
Here, Which? reveals why the inflation rate has changed, and how it compares with the top-rate savings accounts and cash Isas currently on the market.
The main factor that caused May's inflation rate to rise was a motor fuel price rise, compared with a price fall at the same time last year when the UK was in the midst of the first national lockdown.
There was also an upward effect from prices for vehicle maintenance and repair; membership fees for roadside recovery were discounted in April and therefore increased in May. Prices for these services had also fallen at the same time in 2020.
Other price rises have been seen in the games, toys and hobbies category - particularly computer game downloads - as well as recording media, which includes music downloads, DVDs and CDs.
Last, clothing and footwear also contributed to the inflation rate rise, with prices up 2.3% between April and May 2021 as less discounting is taking place than usual for this time of year.
The graph below shows how CPI inflation has fared since May 2017.
The Bank of England has been tasked with keeping inflation as close to 2% as possible. May 2021 is the first time it's exceeded this target since July 2019. Inflation had measured at 1.5% or less from March 2020 to April 2021 due to the economic effects of the .
The table below sets out the top rates for fixed-term and restriction-free instant-access savings accounts and cash Isas, by order of term.
|Account type||Account||AER||Terms||Does this account equal or beat May inflation?|
|Five-year fixed-term savings account||United Bank UK Five-Year Fixed-Term Deposit||1.55%||£2,000 minimum initial deposit||No|
|Five-year fixed-term cash Isa||United Bank UK Five-Year Fixed-Term Cash Isa||1.21%||£2,000 minimum initial deposit||No|
|Four-year fixed-term savings account||Zopa Four-Year Fixed-Term Savings Account||1.2%||£1,000 minimum initial deposit||No|
|Four-year fixed-term cash Isa||Punjab National Bank Four-Year Fixed-Term Cash Isa||0.8%||£1,000 minimum initial deposit||No|
|Three-year fixed-term savings account||Cynergy Bank Three-Year Fixed-Term Bond||1.25%||£10,000 minimum initial deposit||No|
|Three-year fixed-term cash Isa||United Bank UK Three-Year Fixed-Term Cash Isa||0.96%||£2,000 minimum initial deposit||No|
|Two-year fixed-term savings account||United Bank UK Two-Year Fixed-Term Deposit||1.11%||£2,000 minimum initial deposit||No|
Source: Moneyfacts. Correct as of 15 June 2021, but rates are subject to change.
As the table shows, no accounts can equal or beat the May rate of inflation.
Aside from instant-access accounts, which can be opened with just £1, savers with smaller deposits will struggle more than usual to get the top rates right now. Usually, we see the majority of fixed-term accounts asking for a minimum initial deposit of £1,000, but at the moment seven of the top-rate accounts require either £2,000 or £10,000 to be locked away.
You should make sure you're able to do without the money for the entire length of the term, as even if your provider allows you to access it early it's likely you'll be charged a penalty which will take away much of the interest you would have built up.
While rates are still nothing to write home about, it's still looking more positive for savers this month, as average rates for all types of accounts have either stayed the same or risen.
According to data from Moneyfacts, the average rate for long-term savings accounts (ie those with a term of 18 months or more) has risen the most, up 0.06% since May to 0.72%; the average one-year fixed-term savings account is up 0.04% to 0.48%.
Average rates for all types of cash Isa products, along with instant-access savings accounts, haven't changed since May 2021.
However, all rates are still markedly lower than June 2020 - and even further behind the rates seen in June 2019. Even though the long-term savings account average has risen, it's still 60% lower than the 1.81% average seen in June 2019.
But rates may well continue to improve, as competition is heating up. Moneyfacts data shows there are now 1,455 savings accounts and cash Isas on the market - up from 1,406 last month. Just 337 of these are cash Isas, but this is still an improvement since April when just 301 were available - the lowest count since February 2017.
For a longer term comparison, there's the same overall number of accounts on the market as June 2020, but still some way behind the 1,875 accounts available in June 2019.
CPI inflation tracks the costs of a 'shopping basket' containing around 700 popular goods and services - from fish fillets to flip-flops.
The figure that's released each month shows how much prices have changed in comparison with the same month the year before.
So, if you'd bought all the items in the basket in May 2020, and bought them all again in May 2021, your second shopping trip would have been 2.1% more expensive.
Over time, these price changes can affect the buying power of money held in savings accounts. If the cash isn't growing in interest at the same rate as inflation or more, it will effectively lose value because you'll be able to buy less with it.
That's why it's important to make sure your money is making as competitive a return as possible - even when savings rates are low.
You can search through hundreds of savings accounts and cash Isas 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 Which? Recommended Providers.
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.