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Inflation remained at 2.2% in August: which savings accounts offer higher rates?
Falling motor fuel costs helped offset soaring air fares to keep the CPI figure steady
Inflation held at 2.2% in August, according to the latest data from the Office for National Statistics (ONS). That's despite a record jump in the cost of air fares over the summer.
The latest Consumer Price Index (CPI) measure remains slightly above the Bank of England's target rate of 2%, but the good news is that savers are still spoilt for choice when it comes to finding an inflation-busting deal.
Here, Which? reveals the savings accounts and cash Isas that can help you beat inflation, and takes a closer look at the reasons behind this month's figure.
The best inflation-beating savings accounts
Our analysis of Moneyfacts data shows that 1,876 savings accounts (94% of all products) offer rates higher than August's inflation figure of 2.2%. That includes instant access, variable-rate deals, fixed-rate bonds and Isas.
99% of fixed-rate accounts have rates above inflation, compared to 89% of variable-rate accounts.
If we look back to September 2023, when the August CPI measure stood at 6.7%, there were no deals that could beat inflation.
This table shows the top rates currently available on fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| One-year fixed rate | 5% | n/a | £1,000 | Internet, mobile app | On maturity | |
| One-year fixed rate Isa | Charter Savings Bank | 4.67% | 69% | £5,000 | Internet | Monthly, anniversary |
| Two-year fixed rate | 4.72% | n/a | £1,000 | Internet, mobile app | On maturity | |
| Two-year fixed rate Isa | UBL UK | 4.41% | n/a | £2,000 | Branch, internet, mobile app, postal | Monthly, anniversary, on maturity |
| Three-year fixed rate | Birmingham Bank | 4.53% | n/a | £5,000 | Internet | Yearly |
| Three-year fixed rate Isa | Cynergy Bank | 4.35% | n/a | £500 | Internet | Anniversary |
| Four-year fixed rate | Hampshire Trust Bank | 4.27% | n/a | £1 | Internet | Yearly |
Table notes: rates sourced from Moneyfacts on 18 September. Provider customer score is based on savers' overall satisfaction with the brand and how likely they are to recommend it to others. n/a means sample size was too small for us to generate a provider score. (a) 5% interest on balances up to £3,000
- Find out more: what are the different types of savings accounts?
How savings track against inflation
It's important to choose an account with a rate higher than the current CPI figure, as if the interest rate on your account is below inflation, your savings will effectively lose value over time.
This table shows how average savings rates compare to inflation since August 2020, according to data from Moneyfacts:
As you can see, average rates on one-year and longer-term bonds have beaten inflation since October 2023, with average instant access rates not rising above the CPI until April 2024.
What's happening to savings rates?
Despite the huge volume of inflation-beating deals, Moneyfacts data shows that savings rates on both fixed and variable accounts fell during August.
It's the first time all rates have dropped since the start of 2024 and follows the decision by the Bank of England to cut the base rate from 5.25% to 5% on 1 August. A falling base rate is usually bad news for savers, as banks often respond by reducing the interest paid on their savings accounts.
Variable-rate accounts are usually the first to see cuts in response to base rate falls, so it's perhaps no surprise that instant access accounts have taken the biggest hit. Average interest dropped from 3.14% AER on 1 August to 3.07% on 1 September. This is the largest month-on-month fall since April.
The average one-year fixed bond rate fell from 4.63% AER to 4.43%, while the average longer-term fixed bond fell from 4.13% to 3.99%. This time last year, average rates for both types of account were over 5% AER.
With the base rate expected to drop again before the end of the year, savers might wish to brace themselves for possible further cuts and consider grabbing a high-interest deal now while there are still accounts offering up to 5%.
Why did inflation stay at 2.2%?
The cost of flying jumped by 22% between July and August 2024, the second-largest month-on-month rise since 2001, according to the ONS. But despite air fares going up, a drop in prices for other goods and services helped keep inflation flat.
In particular, a 3.4% fall in the overall cost of motor fuels had a downward impact on the rate of inflation.
A slowing of restaurant and hotel prices also offset price rises elsewhere. Prices in this sector rose by 4.4% in the 12 months to August 2024, down from the 4.9% annual increase recorded the previous month.
While the CPI figure is significantly lower than the peak of 11.1% seen in October 2022, it's still above the Bank of England's target of 2%.
It's important to remember, too, that even when inflation is at the Bank of England's target level, it doesn't mean prices are going down; it just means they're rising at a slower rate than before.
