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Inflation jumps to 2.6% – where to find a savings account that beats it
Rises in the price of fuel and clothing push inflation up to an eight-month high, but most savings deals still offer better rates
Falling savings rates mean there are now fewer accounts that beat inflation, which rose to 2.6% in November.
Fuel and clothing were the main drivers behind the rise in the Consumer Prices Index (CPI) inflation figure, which is above the Bank of England's target of 2%.
Read on to find out which accounts offer the best returns on your money, and for more on the reasons behind the rise in inflation.
The best inflation-beating savings accounts
Our analysis of Moneyfacts data shows the number of savings accounts with rates that beat inflation is falling.
There are currently 1,837 savings accounts (87% of all products) offering rates higher than 2.6%. This includes instant access and variable-rate deals, fixed-rate bonds and Isas. This figure is down from last month, when 91% of accounts beat inflation.
Despite the overall drop, the picture still looks better than this time two years ago. In December 2022, when November's inflation stood at 10.7%, there were no savings deals that beat inflation.
If you're looking for a new account, the good news is that the choice of cash savings deals has never been better. The number of savings accounts and Isas is at its highest level since at least 2007, according to Moneyfacts.
This table shows the top rates currently available on fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| Instant access | Cahoot (a) | 4.75% | 61% | £1 | Internet | Monthly, yearly |
| Instant access Isa | Trading 212 | 4.9% | n/a | £1 | Internet, mobile app | Daily |
| One-year fixed rate | Al Rayan Bank (Raisin exclusive*) (s) | 4.8% | n/a | £1,000 | Internet, mobile app | On maturity (compounded annually) |
| One-year fixed rate Isa | Virgin Money | 4.52% | 67% | £1 | Internet | Monthly, yearly |
| Two-year fixed rate | Castle Trust Bank | 4.64% | n/a | £1,000 | Internet, mobile app | On maturity |
| Two-year fixed rate Isa | Hodge Bank | 4.4% | n/a | £1,000 | Internet | Monthly, anniversary |
| Three-year fixed rate | Hodge Bank | 4.62% | n/a | £1,000 | Internet | Monthly, yearly |
Table notes: rates sourced from Moneyfacts on 18 December 2024 and based on a balance of £1,000. Provider customer score is based on savers' overall satisfaction with the brand and how likely they are to recommend it to others. n/a means sample size was too small for us to generate a provider score (a) 4.75% interest on balances up to £3,000. (s) This is a Sharia-compliant product, and so offers an expected profit rate (EPR) as opposed to an annual equivalent rate (AER)
How savings track against inflation
It's important to choose an account with a rate higher than the current CPI figure. If the interest rate on your account is below inflation, your savings will effectively lose value over time.
This table shows how average savings rates compare to inflation since August 2020, using data from Moneyfacts:
As you can see, average rates on one-year and longer-term bonds have beaten inflation since October 2023, with average instant-access rates not rising above inflation until April 2024.
What's happening to savings rates?
Savers could still find a rate of 5% AER with an instant-access account or Isa when inflation was last announced on 20 November, but these deals have now disappeared.
Falling rates are in part down to the Bank of England's (BoE) move to start cutting the base rate, first in August and again in November. A base rate cut matters to savers because banks often respond by reducing the interest paid on savings accounts. Variable rate products, such as instant-access accounts, are usually hit first.
The BoE next makes a decision on the base rate tomorrow (19 December), but a further cut appears unlikely. If you're a saver, this could be a cause for optimism in the short term, as providers may choose to hold off slashing savings interest further.
However, further base rate cuts are likely next year, so if you're shopping around for a new account you may want to consider locking your money away in a fixed-term account for guaranteed returns.
- Find out more: best savings accounts 2024
Why is inflation rising?
The biggest drivers behind October's inflation rise were motor fuel and clothing, data from the Office for National Statistics (ONS) shows.
A rise in ticket prices for events such as concerts and plays also pushed November's inflation up to its highest level in eight months.
A record fall in the cost of air fares helped stop inflation from rising further. It's not unusual to see prices for this sector dip at this time of year, but the ONS says it was the largest November fall since it started collecting this data in 2001.
While the CPI figure is significantly lower than the peak of 11.1% seen in October 2022, it remains above the Bank of England's target of 2%.
It's important to remember, too, that even when inflation is at the Bank of England's target level, this doesn't mean prices are going down; it just means they're rising at a slower rate than before.
