By clicking a retailer link you consent to third-party cookies that track your onward journey. This enables W? to receive an affiliate commission if you make a purchase, which supports our mission to be the UK's consumer champion.
Inflation rate stays at 4% in January 2024 - can any savings accounts still beat it?
Inflation as measured by the Consumer Prices Index (CPI) defied expectations by remaining unchanged at 4% in January 2024, according to the latest Office for National Statistics (ONS) data.
Since the figure dropped below 5%, many savings accounts have offered inflation-busting deals. But with savings rates falling, finding a product that can match or beat inflation could be challenging.
Today's ONS announcement also revealed January's Retail Price Index (RPI) rate of inflation was 4.9%, an important figure for Virgin Media and O2 customers as it's used to determine how their bills will go up later this year.
Here, Which? explains why the inflation rate hasn't budged, and which savings accounts and cash Isas can still help you beat it. We also share our advice for tackling the rising cost of living.
Why is inflation sticky?
Forecasters had expected CPI inflation to rise slightly from 4% in December to 4.2% in January. But the annual rate was unchanged as a result of overall prices falling by 0.6% on the month.
The biggest upward contribution came from household costs, such as water and fuel. Prices for this category rose from 1.9% in December 2023 to 2.5% in January 2024. That was mainly driven by gas prices, which went up by 6.8% on the month, and a 4% increase in electricity costs. The ONS blames the jump on Ofgem's energy price cap, which increased in January 2024.
CPI inflation was held steady, in part, by a 5.2% fall in furniture costs - the fastest monthly drop since January 2020. That was down to retailers slashing prices for kitchens, leather settees, dining tables and chairs.
Food and non-alcoholic drink prices also fell at a monthly rate of 0.4% in January, the first monthly decline since May 2021. This was driven by price cuts last month for bread and cereals, cream crackers, sponge cake and chocolate biscuits.
The Bank of England’s target is to keep inflation as close to 2% as it can, but it hasn’t been that low since July 2021. Before that, inflation was very low – hitting a rock-bottom figure of 0.2% in August 2020 due to the impact of the pandemic.
Broadband and mobile price rises
Broadband and mobile phone customers with Virgin Media and O2 should brace themselves for an 8.8% price increase this April. Both providers have confirmed they will be hiking bills by January's Retail Price Index (RPI) rate of inflation of 4.9%, plus an extra 3.9%.
Those signing up for a Virgin Media or O2 contract from this month forward will not see a price rise until April 2025. Other providers have already announced price rises for the spring, but based on December's CPI figure.
The ONS has said that RPI is not a good way to measure inflation as it's likely to overstate the inflation rate. And now, following campaigning from Which?, regulator Ofcom announced it is planning to ban mid-contract price rises that are linked to inflation.
Use the Which? broadband and mobile price rise calculator to find out how your bills might change. If you are not under contract when prices go up, consider switching provider. You can find out how to save money by moving to a better deal using our guide on switching broadband providers.
Can savings rates still beat CPI inflation?
Savings rates may have soared over the past couple of years, but so too has inflation. For months, no account could get anywhere near matching or beating the pace at which prices were rising, resulting in nest eggs slowly losing value over time.
It wasn't until the CPI figure dropped dramatically to 4.6% last October that savers could finally find an inflation-busting deal. But with interest on some accounts now plummeting and inflation refusing to budge, is that still the case?
We took a look at the latest Moneyfacts data to find out whether savings rates can still keep up with inflation. This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| Account type | Account | AER/EPR | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Atom Bank 5-Year Fixed Saver | 4.5% | £50 minimum deposit |
| Five-year fixed-term cash Isa | UBL UK 5-Year Fixed Rate Cash ISA | 4.16% | £2,000 minimum deposit |
| Four-year fixed-term savings account | Isbank Fixed-Term Deposit (Raisin exclusive*) | 4.5% | £1,000 minimum deposit |
| Four-year fixed-term cash Isa | UBL UK 4-Year Fixed Rate Cash Isa | 4.05% | £2,000 minimum deposit |
| Three-year fixed-term savings account | SmartSave 3-Year Fixed Rate Saver | 4.61% | £10,000 minimum deposit |
| Three-year fixed-term cash Isa | UBL UK 3-Year Fixed Rate Cash Isa | 4.35% | £2,000 minimum deposit |
| Two-year fixed-term savings account | Allied Irish Bank Fixed Rate Saver | 5.1% | £5,000 minimum deposit |
Source: Moneyfacts. Correct as of 14 February 2024 but rates are subject to change.
Moneyfacts data shows there are currently 953 savings products that beat inflation - that includes all easy access, Isas, fixed bonds and notice accounts. That adds up to more than half the savings market.
Challenger banks continue to offer the most competitive rates, with shorter-term fixed products boasting the highest interest deals. However, falling rates on fixed bonds and stagnant inflation means that might not be the case for long.
Rates on these types of accounts have dropped dramatically in the space of just a few months. On 1 February 2024, the average one-year fixed bond stood at 4.62% AER - down from a peak of 5.44% on 1 October 2023. Average rates on longer-term fixed accounts have also fallen sharply from a high of 5.12% AER on 1 September 2023 to 4.12% on 1 February 2024.
It's a similar story for fixed Isas, with one-year products dropping from 5.27% AER in October 2023 to 4.51% at the start of this month. Longer-term Isas fell from 5.02% to 4.08% during the same period.
In contrast, variable rates have remained fairly steady. That's largely due to providers reacting to the Bank of England's decision to hold the base rate at 5.25% since August 2023.
The average interest paid on an easy access account currently stands at 3.17% AER - a minimal 0.02 of a percentage point down on the first-of-month 2023 peak of 3.19% in November. There has also been little movement in the average rate of easy access Isas. On 1 February they stood at 3.3% - just 0.01 of a percentage point less than the high of 3.31% in December.
- Find out more: best savings accounts 2024
How to cut costs when prices are still high
Which? has lots of great advice online for cutting energy costs. Our handy guide offering 10 ways to reduce energy bills includes tips on making home improvements such as insulation and draught proofing, adjusting your boiler's flow temperature and ways to use appliances more efficiently.
We also have advice on how to get the best energy deal, ways to switch provider and what to do if you're struggling to pay your energy bills.
Remember, while inflation on food may be easing, it doesn't mean prices are falling; it just means they're rising more slowly than before. We have lots of advice to help you cut costs on your grocery shopping, plus our monthly analysis reveals which is the cheapest supermarket for a big and small trolley of groceries.
- Find out more: get expert Which? advice, news and podcasts on cutting costs on our cost of living help page.
