Inflation fell to 0.5% in May 2020 - its lowest rate since June 2016 - according to latest figures from the Office for National Statistics (ONS).
The Consumer Prices Index (CPI) measure of inflation is down by 0.3 percentage points from 0.8% in April 2020, partly due to the price of motor fuels and a variety of recreational and cultural goods being cheaper than they were this time last year.
It comes just three months after the Bank of England on 19 March in order to help ease the economic impact of coronavirus. This move also caused savings accounts 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.
The largest contribution to the fall in inflation in May came from recreation and culture, which dropped 0.23 percentage points in May.
There was also a downward contribution of 0.42 percentage points from motor fuels. Petrol and diesel prices were at their lowest rates since April 2016 and September 2016 respectively last month. Petrol prices stood at 106.2p per litre last month, while average diesel prices were 113.4p per litre.
Cheaper clothing and footwearalso 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, although April 2020 was the first time it had fallen below 1% since October 2016. It has been below this level now for two consecutive months.
The table below sets out the top fixed-rate and instant-access cash Isas and savings accounts based on interest rate.
|Account type||Account||AER (or EPR* where stated)||Minimum initial deposit|
|Five-year fixed-rate savings account||Bank of London & The Middle East Premier Deposit Account||1.6% EPR*||£1,000|
|Five-year fixed-rate cash Isa||Punjab National Bank Five-Year Fixed-Rate Cash Isa||1.4%||£1,000|
|Four-year fixed-rate savings account||Bank of London & The Middle East Four-Year Premier Deposit Account||1.55% EPR*||£1,000|
|Four-year fixed-rate cash Isa||Punjab National Bank Four-Year Fixed-Rate Cash Isa||1.35%||£1,000|
|Three-year fixed-rate savings account||Al Rayan Bank Fixed-Term Deposit||1.51% EPR*||£1,000|
|Three-year fixed-rate cash Isa||Cambridge Building Society Members' 3 Year Fixed Rate ISA||1.15%||£500|
|Two-year fixed-rate savings account||Ford Money Fixed Saver 2 Year||1.55%||£500|
*Expected Profit Rate. Source: Moneyfacts. Correct on 16 June 2020; rates are subject to change.
All of the accounts in our table exceed the May 2020 rate of inflation.
Usually, it follows that the longer you lock away your cash, the higher rate of interest you'll receive. But this isn't the case here.
Al Rayan's two-year fixed-rate cash Isa offers a higher rate than Punjab National Bank's four-year fixed-rate cash Isa.
Half of the top rates are offered by Islamic banks, including Al Rayan Bank and Bank of London & The Middle East. 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.
Although top rates of 1.45% and 1.2% for one-year fixed savings rates and cash Isas respectively are above 1%, average rates are now at their lowest levels since records started in 2007, according to Moneyfacts.
The average easy-access account rate on the market in June offers savers a paltry 0.3% - around half of the typical 0.59% rate available in January.
Average one-year fixed savings rates rest at 0.86%, down from 0.99% in May.
A typical easy-access cash Isa currently offers an average interest rate of 0.45%, down from 0.85% in January.
The average one-year fixed cash Isa rate is currently 0.75% - down from 0.91% last month, and 1.15% in January.
However, remember 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.
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 reveals the accounts from 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.
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Which? Money Compare is a trading name of Which? Financial Services Limited. 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.