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19 May 2021

Inflation jumps to 1.5% in April 2021 - can any savings accounts beat it?

Find out the best savings rates and how the savings market has improved

Inflation more than doubled to 1.5% in April 2021, according to the latest figures from the Office for National Statistics (ONS) - in part due to price rises on clothing and motor fuels.

The Consumer Prices Index (CPI) measure of inflation is up from 0.7% in March 2021.

Here, Which? reveals why the inflation rate has changed, and where you can find the best cash Isas and savings accounts to beat it.

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Why has inflation risen?

The main factors that caused April's inflation rate to rise were clothing and footwear prices, which rose by 2.4% between March and April 2021, compared to when prices fell during this time last year.

The same price changes occurred for petrol and diesel, which have seen price rises this year compared to a drop in 2020.

There was also a small contribution for some food items, such as bread and cereals, along with sugar, jams, syrups and confectionery.

These price rises were partially offset by price dips for computer games consoles, dolls and craft kits, which saw price rises a year ago compared with slight falls this year.

The graph below shows how CPI inflation has fared since April 2017.

The Bank of England has been tasked with keeping inflation as close to 2% as possible. However, it's been below this target since August 2019, and April 2021 marks the first time it has measured at more than 1% since March 2020 due to the economic effects of the coronavirus pandemic.

Best savings rates that beat April inflation

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 typeAccountAERTermsDoes this account equal or beat April inflation?
Five-year fixed-term savings accountGatehouse Bank Fixed-Term Green Saver1.4%£1,000 minimum initial deposit.No
Five-year fixed-term cash IsaShawbrook Bank Five-Year Fixed-Term Cash Isa1.1%£1,000 minimum initial deposit.No
Four-year fixed-term savings accountZopa Four-Year Fixed-Term Savings Account1.05%£1,000 minimum initial deposit.No
Four-year fixed-term cash IsaPunjab National Bank Four-Year Fixed-Term Cash Isa0.8%£1,000 minimum initial deposit.No
Three-year fixed-term savings accountZopa Three-Year Fixed-Term Savings Account1.01%£1,000 minimum initial deposit.No
Three-year fixed-term cash IsaPunjab National Bank Three-Year Fixed-Term Cash Isa0.75%£1,000 minimum initial deposit.No
Two-year fixed-term savings accountZopa Two-Year Fixed-Term Savings Account0.9%£1,000 minimum initial deposit.No

Source: Moneyfacts. Correct as of 18 May 2021, but rates are subject to change.

As the table shows, none of the top-rate accounts can equal or beat the April rate of CPI inflation.

Those who don't have much money to save may struggle to find a top-rate account if they want to lock away their cash for more than a year, as the majority of accounts in the table require a minimum initial deposit of at least £1,000.

However, both of the top-rate instant-access accounts and one-year fixed-term accounts accept much smaller minimum deposits; three allow you to open the account with just £1.

Is the savings market improving?

It's been bleak for savers over the past year, but despite the fact that none of the top rates can beat April's inflation figure, this is the first time in a while where we haven't had to report that rates have reached new lows - in fact, there's even a bit of an improvement.

According to data from Moneyfacts, not only have some top rates increased in the past month, but average rates are levelling out - or, in a couple of cases, rising slightly - and there's been an increase in the overall number of products on the market.

The latest figures for May 2021 show the average rate for a one-year fixed-rate savings account is 0.44% - up 0.02% from April 2021. While that may not seem a lot, it's the first time since October 2020 that the rate hasn't consistently fallen. Similarly, average rates for long-term fixed-rate savings accounts (ie those with a term of 18 months or more) are up 0.01% to 0.66%, and long-term fixed-rate cash Isas are also up 0.01% to 0.58%.

As for top rates, the highest rate you could get on a restriction-free instant-access savings account was 0.41% AER - now that's up to 0.5%. The top-rate one-year account has risen from 0.62% to 0.85%; the best rate for a two-year fix is now 0.9% AER up from 0.8% EPR (expected profit rate) last month. However, top rates for longer-term fixes and cash Isas have remained broadly the same.

Perhaps the reason for this uptick is increased competition. Moneyfacts has revealed there are now 1,406 savings accounts and cash Isas on the market, which is still 142 fewer than in May 2020, but the first time since October 2020 that the number hasn't continued to decline. Cash Isas have seen an important boost; there are now 324 cash Isas to choose from, up from a record low of 301 in April.

How does CPI inflation affect your savings?

CPI inflation tracks the costs of a 'shopping basket' containing around 700 popular goods and services - from deodorant to diesel.

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 April 2020, and bought them all again in April 2021, your second shopping trip would have been 1.5% 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.

Save with a Which? Recommended Provider

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.