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15 Dec 2021

Inflation rises to 5.1% in November 2021: should you move your savings?

Which? reveals where to find the top savings rates

Inflation jumped to 5.1% in November 2021, according to the latest figures from the Office for National Statistics (ONS) - the highest its been in 10 years.

The Consumer Prices Index (CPI) measure of inflation is up from 4.2% in October and is at the highest level since September 2011, when it stood at 5.2%.

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 cash Isas and savings accounts currently on the market.

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Why has inflation risen?

The main factors that caused inflation to rise were broad, but the costs of transport (particularly motor fuels and second-hand cars), clothing, and footwear had the largest impact.

The graph below shows how inflation has fared since November 2017, using data from the ONS.

The Bank of England has been tasked with keeping inflation as close to 2% as possible. CPI inflation measured below this figure between August 2019 and April 2021, reaching as low as 0.2% in August 2020 due to the economic effects of the coronavirus pandemic. However, it's estimated that inflation will remain well above 2% for some time to come.

Can any savings rates beat inflation?

The table below sets out the top rates for fixed-term and restriction-free cash Isas and savings accounts, by order of term.

Account typeAccountAERTermsDoes this account equal or beat November inflation?
Five-year fixed-term savings accountHodge Bank Five-Year Fixed-Term Bond2.08%£1,000 minimum initial depositNo
Five-year fixed-term cash IsaUnited Bank UK Five-Year Fixed-Term Cash Isa1.66%£2,000 minimum initial depositNo
Four-year fixed-term savings accountGatehouse Bank Four-Year Fixed-Term Woodland Saver1.92% (EPR*)£1,000 minimum initial depositNo
Four-year fixed-term cash IsaUnited Bank UK Four-Year Fixed-Term Cash Isa1.36%£2,000 minimum initial depositNo
Three-year fixed-term savings accountUnited Bank UK Three-Year Fixed-Term Deposit1.82%£2,000 minimum initial depositNo
Three-year fixed-term cash IsaUnited Bank UK Three-Year Fixed-Term Cash Isa1.31%£2,000 minimum initial depositNo
Two-year fixed-term savings accountSmartSave Two-Year Fixed-Term Saver1.64%£10,000 minimum initial depositNo

Source: Moneyfacts. Correct as of 14 December 2021, but rates are subject to change. *The accounts from Gatehouse Bank are Sharia-compliant, and so offer an expected profit rate (EPR) as opposed to interest (AER).**Must maintain at least a £5,000 balance to earn interest.

As the table shows, none can equal or beat the November CPI rate of inflation.

At the time of writing, those who don't have at least £1,000 to save will be unable to secure a top-rate account.

Six of the accounts in the table require an even higher minimum deposit to open the account. If you opt for a fixed-term option you'll need to make sure you can do without that money for the full term; some providers don't allow early access, while others will charge a hefty interest penalty.

Note that you can make as many withdrawals as you like from the Investec account, but if the balance falls below £5,000 you won't earn any interest.

Average instant-access rates remain low

Average interest rates for both instant-access savings accounts and cash Isas are staying stubbornly low, despite rates for long and short-term fixed-term accounts rising for the sixth month in a row.

According to data from Moneyfacts, instant-access savings accounts have measured between 0.16%-0.19% since January 2021, while instant-access cash Isas have fared slightly better but still stayed within 0.22%-0.26%.

One-year fixed-term savings accounts, however, started the year averaging 0.49% in January, and have now risen considerably to 0.8%.

Long-term fixed savings accounts (ie accounts with terms of 18 months or more) are doing even better, with an average interest rate of 1.14% in December 2021 compared with 0.7% in January.

While we are now seeing top rates for instant-access accounts creep up, the average rate is likely to be held back by the large number of accounts paying 0.01% or 0%.

At the time of writing, 57 instant-access accounts were still paying these paltry rates.

How does CPI inflation affect your savings?

CPI inflation is the speed at which the prices of the goods and services bought by households rise or fall. It tracks the costs of a shopping basket of around 700 popular goods and services bought by households - from petrol to pigs in blankets.

The figure - which is provided by the ONS each month - shows how much prices have changed compared with the same month of the previous year.

For example, if you'd bought all the same items in the basket in November 2020 and bought them all again the same month in 2021, you could expect your shop this year would be 5.1% more expensive.

When you keep money in your bank, you'll likely be earning interest, which should balance out the effects of inflation.

If your cash isn't growing in interest at the same rate of inflation or more, it will effectively lose value because you'll be able to buy less with it.

That's why you should ensure that your money is making the best return possible - even when savings rates are low.