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Rachel Springall

Finance Expert & Press Officer
Published: 14/09/2022
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Despite a fall in inflation, food and clothing prices continue to rise.

UK inflation rose by an annual rate of 9.9% in August, a decrease from the 10.1% recorded in the 12 months leading to July according to the Office for National Statistics (ONS).

The main contributor to the fall inflation was a decrease in petrol prices, which for the most part of the year rose due to the war in Ukraine. Between July and August, petrol and diesel prices fell by 14.3 pence and 11.3 pence per litre respectively.

“[Inflation] has been pulled down by falling petrol prices, and it hides worrying news that the prices of food and clothing are continuing to accelerate upwards,” George Dibb Head of the Centre for Economic Justice at the Institute for Public Policy Research told The Guardian.

The prices for food and non-alcoholic beverages increased by 1.5% over the month, the largest July to August rise since 1995. The current annual rate of inflation for this category stands at 13.1%, registering an increase for 13 consecutive months.

The rise in clothing prices, meanwhile, sits at 7.6% in the year to August. Month-on-month prices saw a 1.1%, which is normal for this time of year, according to the ONS.

What does this mean for my savings?

Savers’ cash is still being eroded in real terms due to the current level of inflation, but this should not deter consumers from reviewing their existing rate and being proactive to switch.

Since the last inflation announcement, top rates have continued to improve and savers who are looking at one-year fixed bonds will find they can now earn more than 3%. Challenger banks have made a positive impact on the top rate tables, but due to continued competition, savers will need to keep on top of the ever-changing market to take advantage.

The consecutive Bank of England base rate rises since December 2021 have had a positive impact on the easy access market, but the top rates on offer are from challenger banks. Savers who have yet to review their accounts would be wise to do so, as they can now earn a much higher rate than what could have been achieved a few months ago.

However, some savers may not have seen the benefits of every base rate rise on their existing account, so reviewing and switching is essential. Savers could also consider notice accounts instead of easy access, as this arena has continued to thrive in recent months and these could be an attractive alternative to a fixed bond.

Savers who are prepared to lock their cash away for a guaranteed return might not wish to do so for a long period of time, thankfully though, the one-year fixed bond arena is flourishing. The top one-year fixed bond now pays 1.90% more than a year, which is a huge improvement as savers would have found the top rate on a five-year fixed bond paid less than 2% a year ago.

Fixed ISA rates have also improved, but the top rates are still lower than the top fixed bond rates, so it’s essential savers consider their ISA allowance and any Personal Savings Allowance when they invest.

As interest rates continue to rise and the cost of living crisis takes its toll, savers will need to decide how much of their cash they are prepared to lock down for a guaranteed return and how much they need closer at hand. Regardless of what type of account they choose, it’s imperative they consider the more unfamiliar brands who offer attractive returns and who are covered by the Financial Services Compensation Scheme (FSCS).

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