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Updated: 13 Apr 2022

Inflation rises to 7% in March 2022: what does it mean for your savings?

The March RPI figure will see student loan interest increase to 12% in England

Inflation rose to 7% in March 2022, according to the latest figures from the Office for National Statistics (ONS) - partly due to price rises for motor fuels, second-hand cars and clothing and footwear.

The Consumer Prices Index (CPI) measure of inflation is up from 6.2% in February 2022. CPI inflation tracks the cost of a 'shopping basket' that contains around 700 popular goods and services.

The Retail Prices Index (RPI) rose to 9%. This has a direct impact on student loan repayments, which are set at the March RPI rate plus 3%.

Here, Which? reveals why the inflation rate has changed, how it compares to the top-rate savings accounts and cash Isas - plus we also suggest ways you can tackle rising living costs.

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Why has inflation risen?

The March inflation rate was mainly caused by price rises for motor fuels, with prices for both petrol and diesel reaching their highest prices on record in March.

The popularity of second-hand cars has continued since the pandemic, with demand being increased due to the global semiconductor shortage affecting the production of new cars.

Clothing and footwear prices also rose by 9.7% in the year to March 2022, while recreation and cultural goods are up by 5%.

Elsewhere, prices for food and non-alcoholic beverages are also up, rising by 5.9%.

The graph below shows how inflation has fared since March 2018, 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 effects of the coronavirus pandemic.

However, it's been significantly above 2% since August 2021, and it's estimated that inflation will remain high for some time.

The base rate, which affects the costs of mortgages and the amount of interest paid on savings, has now risen three times since December in response to soaring inflation. It could be tweaked again if the Bank of England thinks an even higher base rate could help to keep inflation down. The next decision on the base rate will be published on 5 May 2022.

Student loan interest to rise to 12% from September

March's RPI figure of 9% is used to increase the interest rate for student loan repayments. Following the usual method of using RPI plus 3%, it means student loan interest will hit 12% in September.

However, this rate will dip in March 2023, when an interest cap is being introduced stating that the interest charged on student loans cannot be higher than on unsecured commercial loans offered by high street providers.

Student loan interest had previously been set at 4.5% for 2021-22.

Can any savings rates beat CPI inflation?

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

Account typeAccountAERTermsDoes this account equal or beat March inflation?
Five-year fixed-term savings accountGatehouse Bank Five-Year Fixed-Term Woodland Saver2.5% (EPR*)£1,000 minimum initial depositNo
Five-year fixed-term cash IsaGatehouse Bank Five-Year Fixed-Term Woodland Cash Isa2.1% (EPR*)£1,000 minimum initial depositNo
Four-year fixed-term savings accountGatehouse Bank Four-Year Fixed-Term Woodland Saver2.25% (EPR*)£1,000 minimum initial depositNo
Four-year fixed-term cash IsaGatehouse Bank Four-Year Fixed-Term Woodland Cash Isa1.9% (EPR*)£1,000 minimum initial depositNo
Three-year fixed-term savings accountCynergy Bank Three-Year Fixed-Rate Bond2.28%£10,000 minimum initial depositNo
Three-year fixed-term cash IsaGatehouse Bank Three-Year Fixed-Term Woodland Cash Isa1.85% (EPR*)£1,000 minimum initial depositNo
Two-year fixed-term savings accountAl Rayan Bank 24 Month Fixed Term Deposit2.21% (EPR*)£5,000 minimum initial depositNo

Source: Moneyfacts. Correct as of 12 April 2022, but rates are subject to change.

As the table shows, no top-rate accounts can equal or beat the current rate of CPI inflation.

This is the twelfth month in a row that no accounts have been able to equal or beat CPI inflation, despite savings and cash Isa rates gradually rising for the past few months.

The graph below shows the difference between CPI inflation and the top-rate five-year fixed-term savings account at the time the inflation data was released, using data from the ONS and Moneyfacts.

While CPI outpaced top savings rates back in April 2021, there was only a difference of 0.1% between the two; as CPI measured 1.5% but it was possible to get a five-year fixed-term account paying 1.4%.

But now, we're seeing a difference of 4.5% between the March CPI inflation figure and the top five-year savings account rate. The larger the gap between savings interest and inflation, the more the value of your savings will be eroded.

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 swimwear to sausages.

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 March 2021 and bought them all again the same month in 2022, you could expect your shop this year would be 7% 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.

What can you do to tackle rising prices?

According the to ONS, the biggest price rises driving up inflation have been transport, clothes and shoes, and food - we have lots of tips to help you cut costs in these areas.

Our experts have found the best cheap supermarket food and drink that beats big brands on taste, as well as comparing how much it would cost to buy the same shopping list at eight major UK supermarkets to find the cheapest supermarket in March.

You can also find 17 ways to save money on your household bills and living costs, with tips on everything from energy bills and cutting broadband costs, to saving fuel costs.

Get further help with the cost of living

Experts from across Which? have compiled the latest news and advice that can help you navigate the cost of living crisis.

Check out our free advice and podcasts to help ease the squeeze on household bills, grocery shopping and more.

This article has been updated since it was first published. On 13 April it was updated to add information about the March RPI figure and the effect it will have on student loan interest.