How to protect your UK savings from inflation

Home › Savings › How to protect your UK savings from inflation

The rising cost of living may have forced you to reign in your spending over recent months, but have you considered the impact of inflation on your savings? With inflation still relatively high, it might be time to review your savings and investment strategy.

In this article, we look at how inflation works, what it means for you and how high-interest savings accounts and other investment vehicles can help to mitigate the impact of rising prices.

The rundown
  • Inflation effects: High inflation can reduce your purchasing power and erode the value of your savings in real terms
  • Interest rates: Shopping around to find savings accounts with high interest rates is one of the best ways to protect your savings from the effects of high inflation
  • Inflation-proof investments: Inflation-beating investments like index-linked bonds and equity investments may be a suitable option if you’re prepared to take on some risk

What is inflation?

Inflation is a measure of the rate at which the price of goods and services increases over a set period. So, if a £1 tin of soup rises by 3p, the rate of soup inflation is 3%. Rising inflation results in a reduction in the purchasing power of money. In other words, you’ll get fewer goods and services for your pounds and pence. 

You only have to look back over the last few decades to see the effects of inflation. For example, in 1970 £1 was able to buy 10 loaves of bread. Fast-forward to 1980 and this had fallen to three loaves. By 2020, £1 could buy you just one loaf of bread. This is the result of inflation and the fall in purchasing power over time.



The Bank of England (BofE) aims to keep inflation at 2%. However, the effects of the Covid-19 pandemic and the global surge in energy prices means UK inflation is now well above this target. Inflation was close to zero in February 2021, but by July 2023 it had increased to 7.9%. 

In an attempt to tackle the problem, the BofE has repeatedly raised the UK base rate. As a result, interest rates on many savings accounts have also gone up, although borrowing has become more expensive.

What is inflation?
What is inflation?

It’s important to have a basic understanding of inflation because of its impact on our everyday lives. Find out how it works, what causes it, different types of inflation indexes and how inflation is managed.

Read more
What is the Consumer Price Index (CPI)?
What is the Consumer Price Index (CPI)?

The Consumer Price Index, or CPI, is used around the world to measure inflation. Now more than ever, it’s important to understand how the CPI and inflation work so you can protect your savings.

Read more
How much money do you need to live comfortably in the UK?
How much money do you need to live comfortably in the UK?

In this article, we consider how much income you need to enjoy a comfortable standard of living in the UK. We also compare average salaries and expenses across the UK.

Read more

How does inflation affect your finances?

While the Bank of England has said it expects inflation to come down later this year, it’s still much higher than the target rate of 2%. So what does this mean for your finances?  Let’s look at this in more detail.

You may already be feeling the impact of inflation on your general living expenses. Costs for items such as DIY materials and savoury snacks have risen substantially over the past year. This, coupled with high energy and fuel costs, means you may have less money left over from your wages at the end of the month. And if your salary is rising by less than the rate of inflation, you will see a fall in the ‘real’ value of your pay. Those people already living on a small income are likely to feel the pinch more acutely. 

As well as affecting everyday spending, rising inflation can also impact your savings. Say, for example, you put £1,000 into a savings account with an interest rate of 1%. One year later you will have an extra £10 in the bank. While you might have more money, if the inflation rate is higher than 1%, your purchasing power will be less.

If your aim is to generate a good return on your savings in real terms, you may want to look at ways you can try to ‘beat inflation’ (see below).

How to protect savings from inflation in the UK

With inflation still high, it’s more important than ever to protect your savings from the effects of rising prices. While we can’t promise you’ll be able to ‘beat inflation’ with savings, anything you can do to mitigate its impact and increase your buying power is always worthwhile.

If you’re wondering what to do with your savings during times of high inflation, here are some strategies that may help. The best approach for you will of course depend on your financial situation, savings goals and appetite for risk, so do seek expert advice if you’re unsure.


Here are five ways you can protect your UK savings from inflation: 

1. Shop around for the best interest rate 

You should always shop around to find the best interest rate, but in times of high inflation it’s  more important than ever. When comparing savings providers, it’s worth searching beyond the familiar high street banks; you’ll often get a better deal if you look at alternative providers. There are plenty of comparison tools available online or simply use the table at the top of this page to compare competitive savings accounts from our partner banks.

2. Consider longer-term savings accounts

If you really want to maximise your savings interest and mitigate the impact of high inflation, it might be worth considering a long-term savings account such as a fixed rate bond. These types of accounts require you to lock away your money for a set term – typically one year, two years, three years, five years or six months

In return, you’ll receive a guaranteed, fixed rate of interest that’s usually higher than that on instant access and easy access savings accounts. Generally speaking, the longer you can afford to lock your money away, the higher the interest rate will be.

While fixed rate bonds can be a good option for anyone wanting to beat inflation with their savings, it’s important to note that they won’t suit everyone. Once you make your initial deposit, you can’t access your cash until the account matures (at least not without incurring a penalty). So if there’s a chance you’ll need to access your savings before the end of the term, or if you want to use the money to cover emergency expenses, this probably isn’t the right type of account for you.

If you’re looking for a more flexible savings option, you may want to consider a notice account or an easy access savings account. While the interest rate will usually be lower, there are still plenty of competitive deals out there if you’re prepared to do your research.

3. Consider equity investments

If you want to beat inflation or simply diversify your savings portfolio, equity investments may be a good choice. Equity investments mean you’re investing money into a company by purchasing its shares, which are small pieces of the company. Shares are also referred to as stocks. If you own stocks, you’re entitled to a portion of the profits and assets the company makes. There are various types of equity investments available.

Stocks typically beat inflation in the long-term, because companies can increase their share price to keep up with increasing costs brought about by inflation. For example, if wages and production costs rise because of inflation, a company might pass these costs to their consumers by raising their share prices, and the cost of their goods or services. 

While equities have historically proved to be one of the most effective inflation-beating investments, there is a high degree of risk involved. The unpredictability of the stock market means you could stand to lose all, or part of, the value of your investment.

If you’re not comfortable with this level of risk, you might want to consider opting for a high-interest savings account such as a fixed rate bond instead.

4. Research other inflation-beating investments

Equity investments aren’t the only vehicles that can protect savings from UK inflation. Index-linked bonds, also known as gilts, have also proved profitable for many investors. Offered by the government, they make coupon payments based on the retail price index (RPI), which measures inflation. A higher inflation rate results in a higher coupon payment. 

Given the current economic climate, demand for index-linked bonds is extremely high and they are trading at premium rates. To determine whether this is the best option for you, we recommend speaking to a financial adviser. They can help you decide what to invest in during high inflation and compare a range of investment vehicles to create a solid inflation-beating portfolio.

5. Take advantage of tax breaks

Maximising tax-efficiency is crucial if you want to make the most of your savings and investments. Whatever investment route you choose, it makes sense to use any tax breaks while they’re available. 

Thanks to the personal savings allowance (PSA), many people don’t pay tax on their savings interest. However, with interest rates on savings accounts rising, more of us are at risk of exceeding our PSA and therefore incurring a tax charge. If this applies to you, it might be worth thinking about utilising tax-free saving accounts such as ISAs. You can save up to £20,000 in an ISA every tax year without having to pay tax on any interest earned. 

There are currently four types of ISA available:

You can open more than one type of account, but the maximum investment allowance applies to you as an individual, not to each account you open. 

Investing in a pension scheme is also a great way to minimise tax as the government effectively tops up your contributions in the form of tax relief. The amount of tax relief you receive will depend on your taxable income – in some cases it’s worth up to 45%. 

The maximum amount you can pay into your pension pot and receive tax relief for (the annual allowance) is £60,000 in 2023/24 (up from £40,000). Meanwhile, the lifetime allowance is currently set at £1,073,100, although this is due to be abolished completely from 2024/25.

Protect your savings with Raisin UK

At Raisin UK, our marketplace is home to savings accounts with high interest rates from a range of partner banks. 

Our fixed rate bonds tend to offer the most competitive rates of all account types, making them an ideal choice if you want to protect your savings from inflation. However, if you prefer to have a degree of flexibility, notice accounts may be a better option. They require you to give a short notice period to withdraw money, typically between 30 and 90 days, but offer more competitive rates of interest than easy access savings accounts. 

To get started, simply register for a Raisin UK Account today.

Frugal living in the UK
Frugal living in the UK

We consider the meaning of frugal living and the benefits that come with a frugal lifestyle. We also outline our top 50 frugal money-saving tips to help you get started.

Read more
How to stop spending money
How to stop spending money

Want to know how to stop wasting money each month? In this guide, we provide some practical tips and advice to help you stop spending money unnecessarily.

Read more
How to improve your credit score
How to improve your credit score

Want to improve your credit score? We look at why it matters and actions you can take to boost your score.

Read more

See what our customers say about us on Trustpilot

Average based on 2,464 reviews