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May inflation drops to Bank of England target of 2% – how do savings rates compare?
CPI figure falls to lowest level in almost three years
Inflation fell to 2% in May 2024, according to data from the Office for National Statistics (ONS). The drop from 2.3% in April may be small, but it's the first time since July 2021 that it's been this low.
This month's tumble in the figure, as measured by the Consumer Price Index (CPI), also means inflation has hit the target rate set by the Bank of England. It's important to remember, however, that the decrease doesn't mean prices are going down; it just means they're rising at a slower rate than before.
Here, Which? explains why the inflation rate has eased, and which savings accounts and cash Isas can now help you beat it. We also share our advice for keeping costs down.
Why has inflation fallen?
The annual rate of inflation has dropped to its lowest level in almost three years, after hitting a peak of 11.1% in October 2022 – the highest it's been in more than 40 years.
One of the main drivers behind this month's easing of inflation was a slowing of price rises for food and non-alcoholic beverages. ONS data shows the cost of these goods rose by 1.7% in the year to May 2024, down from an annual increase of 2.9% in April.
May's food inflation figure is the lowest year-on-year rate since October 2021 and it's the 14th consecutive month that it has dropped. Around this time last year, it was a very different story, with food inflation soaring. It rocketed to a 45-year-high of 19.2% in March 2023.
A monthly fall in the price of bread and cereals, vegetables, and sugar, jam, syrups, chocolate and confectionery had the biggest downward effect on the latest food inflation figure.
ONS data shows there were also significant falls in the price of recreational and cultural goods and services, as well as furniture and household goods. But the price of filling up your car at the pump rose slightly, with petrol costing around £1.49 per litre in May 2024, up from £1.44 per litre in May 2023.
The graph shows how inflation has changed since August 2020:
The Bank of England’s target is to keep inflation as close to 2% as it can, and after almost three years that target has been met.
Inflation hasn’t been this low since July 2021 but before that it was even lower – hitting a rock-bottom figure of 0.2% in August 2020 due to the impact of the pandemic.
How many savings deals beat CPI inflation?
Savers looking for an inflation-busting deal are now spoilt for choice, with the latest Moneyfacts data showing 1,622 products now offer rates higher than 2%. That's up from 1,558 last month and includes easy access, notice accounts, variable-rate deals, fixed-rate bonds and Isas.
This table shows the top rates for fixed-term and instant-access cash Isas and savings accounts, ordered by term.
| Account type | Account | AER | Terms |
|---|---|---|---|
| Five-year fixed-term savings account | Atom Bank 5 Year Fixed Saver | 4.6% | £50 minimum deposit |
| Five-year fixed-term cash Isa | Principality Building Society 5 Year Fixed Rate Cash ISA | 4.17% | £500 minimum deposit |
| Four-year fixed-term savings account | Isbank 4 Year Fixed Term Deposit (Raisin exclusive*) | 4.74% | £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 | Sensible Savings Fixed Rate Bond | 4.8% | £5,000 minimum deposit |
| Three-year fixed-term cash Isa | United Trust Bank Cash ISA 3 Year Bond | 4.5% | £5,000 minimum deposit |
| Two-year fixed-term savings account | Vanquis Bank Savings | 5.06% | £1,000 minimum deposit |
Source: Moneyfacts. Correct as of 19 June 2024 but rates are subject to change. *Deals marked (Raisin exclusive) are exclusively available through Raisin UK, which is a savings platform. Raisin offers savings accounts from a range of smaller or lesser-known banks and building societies. You'll deposit your money and manage your account through Raisin, rather than dealing directly with the provider. Deposits with all providers are protected by the Financial Services Compensation Scheme (FSCS), with the exception of deposits with AgriBank and HoistSavings, which are protected by the Maltese and Swedish deposit protection schemes, respectively. You can find out more about Raisin in our guide to savings platforms.
If we look back to June 2023, when the CPI measure stood at 8.7%, there were no deals that could beat inflation. Now all the top interest deals listed in our table are more than double the current rate at which prices are increasing. The best deals currently on the market are offered by smaller, challenger banks, with the highest rates on short-term fixed bonds or instant-access accounts.
It's important to choose an account with a rate higher than the current CPI figure because if interest isn't at the same rate of inflation or more, your nest egg will effectively lose value over time.
Taking a closer look at the market, we can see rates on one-year fixed accounts in particular have seen a slight uptick recently. Moneyfacts data shows the average interest on these accounts rose to 4.59% AER, breaking seven months of back-to-back cuts, rising for the first time since October 2023.
But savers whose one-year bonds are now maturing may be disappointed to find the rate for this type of account no longer beats that of June 2023. However, those who locked into a two-year term back in 2022 will find that the current top rates pay over 2 percentage points more interest. If you fixed for even longer then you will be able to get significantly higher rates if they decide to fix again.
If you choose to open a variable rate account, such as an instant access, you'll be rewarded with a generous 5.2% AER. But remember, if the Bank of England decides to cut the base rate on Thursday 20 June, we may see rates on these types of accounts go down with it.
How to cut costs when prices are still high
May saw the cost of petrol rise again. Our guide on how to save fuel and other money-saving driving tips can help you keep those costs down – from tips on how often you need to fill up to where to go when you do.
And while inflation on food may be easing, the price of many goods is still high. 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 big and small trolleys of groceries.
