Best inflation-beating savings rates: Make your money work harder

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Inflation climbed for the ninth month in a row to 9.4 per cent over the last 12 months in June, up from 9.1 per cent in May.

It means that consumer prices are rising by almost five times the Bank of England’s long-term target of 2 per cent.

Inflation is the rate at which prices rise. For example, if the average pint of milk rises from 60p to 66p over 12 months, then milk inflation is 10 per cent.

Current CPI measure: 9.4% 

Best buy easy-access: 1.6% – Gap: 7.8 percentage points

Best buy one-year fix: 2.75% – Gap: 6.65 percentage points

Keeping an eye on inflation is key to knowing whether or not your savings are being eaten away by inflation

The CPI measures the average change in prices of roughly 730 core goods and services over time, including transport, food, and medical care.

Savers are continuing to see their cash pots eroded, as not a single standard account manages to pay an inflation-beating rate, This is Money’s research reveals.

Each month we search for the best savings accounts to use to protect the value of your money in real terms. 

Over the past 12 months we have found not one single account that has managed to match of better inflation.

With the CPI at 9.4 per cent as of June, the gap between the best savings rates and inflation has widened further. 

The best easy-access deal pays just 1.6 per cent, the top one year fix pays 2.75 per cent, whilst even the top five-year fix pays just 3.31 per cent interest. 

Inflation vs savings

The truth is, there’s no such thing as a single rate of inflation. Everyone will have their own because people buy different goods and services from an array of shops and sellers.

The changing price of dog food, for example, is not going to be relevant to someone who does not have a four-legged companion.

Instead, Britain’s national statisticians aim to create a representative basket of goods which is broadly reflective of the nation’s shopping habits.

This basket, which is used to calculate what we know as ‘the rate of inflation’, or the Consumer Prices Index, is updated once a year to reflect changing tastes. 

For example, at the start of this year, 19 items were added to the Consumer Prices Index and 15 items were removed.

Additions to the basket for 2022 include meat-free sausages, canned pulses, sports bras, pet collars and antibacterial surface wipes.

Removals from the basket includes doughnuts, men’s suits and coal.  

The CPI, or a version of it, is used by the Bank of England to determine how effective it is at keeping inflation around its target of 2 per cent. 

The Bank uses the rate of inflation to determine whether to raise or lower its base rate, in the hope people will borrow or spend more.

And while the base rate doesn’t quite determine mortgage or savings rates quite as often as it used to, inflation is very important for everyday savers too. 

After all, if the rate paid on savings is below the CPI, savers are almost certain to be losing money in ‘real’ terms.

And sadly, this is something that is relatively common. Not only are savings rates low, but those being paid them often fail to switch to a better-paying account.  

Easy-access accounts with banks such as HSBC, RBS and NatWest pay just 0.1 per cent interest, or £10 on every £10,000 – and Barclays pays even less at 0.01 per cent.

With the current rate of CPI in June now 9.4 per cent, savers with cash in accounts such as these will be, in essence, shredding money.

The ‘real’ value of that £10,000 would shrink by more than £900 after interest and inflation were calculated after a year if your money is parked at such a low rate. 

CPI inflation hit 9.4 in June – up from 9.1% in May. It’s the highest inflation has been since 1982.

That’s why it’s important to ensure savers are earning the best rate on their cash savings that they can be.

Each month This is Money publishes figures from the analysts Savings Champion which reveal how many current savings deals beat the latest available inflation reading from the Office for National Statistics.

Coupled with our independent best buy tables, this should give savers all the information they need to find the hardest-working home for their cash. 

In the 12 months to May 2022 

In June last year, the CPI stood at only 2.5 per cent. That figure rose to 3.2 and 3.1 per cent in August and September before rising to 4.2 per cent in October. 

As of December inflation stood at 5.4 per cent before soaring to 6.2 per cent in February and then 7 per cent in March before surging to 9 per cent in April.

Rising energy bills, motor fuel prices, used cars, as well as he rising cost of other goods and services including food, clothing and footwear, are all combining to cause the spike, according to the ONS. 

April’s huge hike in energy prices are taking their toll as time goes on. When it’s added to the rise last October, it means the cost of gas has almost doubled in a year, and electricity prices are up by around half.  

The rising oil price continues to cause enormous pain at the pumps, and in June, petrol price inflation hit 42 per cent. Diesel car drivers were in even more trouble, with diesel up 44 per cent. 

Food and non-alcoholic drink prices were rising faster again – up 9.4 per cent in a year.

There have been some big rises in prices of some staples including pasta up 16 per cent, low fat milk up 26 per cent, poultry up 15 per cent and butter and margarine up 21.5 per cent. 

Sarah Coles, a senior personal finance analyst at Hargreaves Lansdown said: ‘Inflation has hit another 40-year high, powered by horrible rises in the price of energy, fuel and food. 

‘These are not only the kinds of costs that we find incredibly difficult to cut, they’re also the ones which are less likely to be controlled by higher interest rates.

‘And price rise pain is far from over, because the Bank of England expects it to peak at 11 per cent in October.

‘For the millions of people who are already struggling, life is going to get far harder, and while those on the lowest incomes will face the biggest challenges, even those who consider themselves relatively comfortable will start to struggle.’

Cash erosion: Inflation has been gathering pace in all areas of the economy.

Laura Suter, head of personal finance at AJ Bell added: ‘Everyone will have felt inflation in their food shop, with this month’s figures laying bare just how pricey everything has become. 

‘They put grocery inflation at almost 10 per cent, meaning that a £100 food shop a year ago will now set you back £110 for the same items. 

‘The largest culprits for food inflation will have many people turning vegan, with eggs, cheese, milk and meat all seeing the biggest rises in prices. 

‘However, vegetables also saw some substantial price rises, meaning there is nowhere to hide.

‘On top of that, we have wage growth falling in real terms. Put bluntly, we all need to spend more to get the same amount of stuff, but manage that on a smaller salary. It’s not a conundrum that anyone relishes solving.

‘However, one area where we are starting to see price falls and inflation ebb away is in used cars. 

‘The market was rampant thanks to the chip shortage and a lack of new cars available, but it appears some of those price rises are starting to plateau with June seeing the fifth consecutive month of price falls.’

Accounts that currently beat inflation: 0

There are no general savings deals that currently beat inflation.  

This makes for bleak reading when you consider the 367 deals which beat the February 2021 reading of 0.4 per cent, and 115 which beat March’s reading of 0.7 per cent.

As a result, these are tough times for savers. The best thing they can do is simply to find the best rate they can and avoid losing any more money in real terms, or consider investing excess cash in the hope of better returns.

This is Money says: Savers may well think that locking their money away for several years might act as a so-called ‘hedge’ against inflation, but with the future outlook on both savings rates and price rises so uncertain, it is best to retain some flexibility at the moment.

For example, the best rate to fix for five years is 3.31 per cent – not much more than a third of the current rate of inflation.    

There is not much of a premium for locking money away for longer than a year at the moment, so those keeping their money in cash might well be best off locking some away for up to 12 months to benefit from a better rate and the certainty, while keeping the rest in the highest-paying easy-access or short-term notice account they can find. 

The best one year fixed rate deal is currently offered by Gatehouse Bank, paying 2.75 per cent. It is also offering the best two-year fixed rate deal paying 3 per cent.

Both deals are available via the savings platform Raisin, which is currently offering a promotional offer exclusively via This is Money, when using this link*.

It offers savers the chance to boost their savings by £25 when they open and fund an account on its marketplace with a minimum of £10,000. 

On a £10,000 deposit that could essentially turn the one-year 2.75 per cent deal into a 3 per cent deal. 

In terms of easy access rates, Al Rayan Bank is paying 1.6 per cent – albeit savers will need £5,000 to open an account.

Raisin once again offers savers the opportunity to leapfrog the best deal via its own exclusive deal. 

Its best easy-access deal offered via Hoist Savings pays 1.5 per cent.* Deposit £10,000 via the link and receive the £25 bonus and you effectively earn 1.75 per cent for the first year.

Sarah Coles adds: ‘If you’re among the four in five savers with their money languishing in easy access accounts with the high street banks, you can’t afford to sit and wait for them to do the right thing. 

‘The high street giants have passed on an insultingly small fraction of the rate rise to savers, and one bank hasn’t moved at all from the rock bottom of 0.01 per cent.

‘To help close the gap on inflation, any money you need for planned expenses in the next five years still needs to be in savings, but can be fixed in return for more interest. 

‘Right now, the short-term fixed-rate market is offering particularly competitive deals, as smaller and newer banks compete hard for your one-year fixed term savings.’