The UK Consumer Prices Index (CPI) measure of inflation fell to 1.7% in August 2019, the Office for National Statistics revealed this morning.
The rate, which tracks how the cost of a fictional basket of goods has changed over the year, is thelowest since December 2016.
Here we explain why inflation has come down and what impact this will have on your savings.
The ONS says the main cause of inflation falling was a decrease in the cost of 'recreational' and 'cultural goods', including games, toys and hobbies, and cultural services, as well as clothing and sea fares.
You can see how CPI inflation has changed since the EU referendum in June 2016 in the graph below.
Inflation peaked in November 2017 when it hit 3.1%, meaning no savings account could beat it.
The Bank of England aims to keep inflation as close to 2% as possible. So far this year, it has hovered close to this benchmark, and is now tracking well below it. This means savers are in a much better position to find an account that can help them match or beat inflation.
The CPI rate of inflation can affect the value of your cash savings, so it's worth monitoring.
CPI tracks how the cost of a fictional basket of more than 700 goods and services has changed each month compared with the same time last year.
If you had bought all the things in the basket in August this year, you'd have paid 1.7% more than in August 2018.
The rising cost of goods means you can buy less today with the same amount of cash, eroding the buying power of your savings.
You can counteract this by earning interest. But if the interest rate doesn't match or beat the rate of inflation, your savings will still lose value over time.
Since inflation has dropped to its lowest level in over two and a half years, there are more accounts that can help protect your savings - and you could earn this by locking up your money for a year or less.
The table below shows the accounts paying the most interest on cash across instant access, notice and fixed-rate deals, according to Which? Money Compare.
As a rule of thumb, the longer you commit your savings, the more you'll earn. This isn't always true however - you can earn more from the top-rate three-year bond than the top four-year bond.
We've only included accounts open to all UK savers that you can open with £5,000 or less.
|Type of account||Name of account||Rate AER||Minimum deposit|
|Five-year fixed-rate bond||Gatehouse Five-Year Fixed-Term Deposit||2.45% (EPR)*||£1,000|
|Five-year fixed-rate cash Isa||Metro Bank Five-Year Fixed-Rate Cash Isa||2.10%||£1|
|Four-year fixed-rate bond||BLME Four-Year Premier Deposit Account||2.25% (EPR)*||£1,000|
|Four-year fixed-rate Isa||Hodge Bank Four-Year Fixed-Rate Cash Isa||1.80%||£1,000|
|Three-year fixed-rate bond||BLME Three-Year Premier Deposit Account||2.45% (EPR)*||£1,000|
|Three-year fixed-rate cash Isa||Metro Bank Three-Year Fixed-Rate Cash Isa||1.85%||£1|
|Two-year fixed-rate bond||BLME Two-Year Premier Deposit Account||2.35% (EPR)*||£1,000|
*Expected profit rate
Source: Which? Money Compare. Rates correct as of 18 September 2019.
This means there is a chance you'll be paid a lower rate than the one advertised. However, to date, that hasn't happened with these providers.