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Inflation drops to 3.4% in February – majority of savings accounts can now beat it
Inflation as measured by the consumer prices index (CPI) fell sharply to 3.4% in February 2024, according to data from the Office for National Statistics (ONS).
CPI, which tracks the cost of an imaginary 'shopping basket' of around 700 popular goods and services, is at its lowest level for nearly two and a half years. It's the first time inflation has dropped since November 2023 and follows two consecutive months of the rate staying put at 4%.
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 tackling the rising cost of living.
Why has inflation fallen?
The monthly drop in the CPI figure was driven largely by the falling price of food and non-alcoholic beverages, according to the ONS. The annual rate of inflation for these items fell from 7% in January 2024 to 5% in February – the lowest it's been since January 2022.
It's the 11th month in a row that food inflation has eased, following a 45-year high of 19.2% in March 2023.
Prices for restaurants and hotels also fell, with the annual rate of inflation for these plunging to 6% in February 2024 from 7.1% the previous month.
However, ONS data shows prices for housing and household services are rising. In the 12 months to February 2024, the rate rose to 2.9%, up from 2.5% in January. That's still a far cry from the peak of 11.8% seen last January and February.
Higher mortgage and rental costs are the main drivers behind the rate increase. For example, price increases for privately rented properties pushed up the rental inflation rate to 6.9% in the year to February, up from 6.5% in January.
An overall easing of CPI inflation was also offset by an uptick in petrol and diesel prices. ONS figures show that the average price of petrol rose by 2.3p per litre between January and February 2024. Diesel prices also rose by 3p per litre in February.
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, 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.
- Find out more: one in 12 households miss an essential payment. What to do if you're struggling with your bills.
How many savings deals beat CPI inflation?
This month's drop in the CPI figure is good news for savers, with the latest Moneyfacts data showing four in five products now offer inflation-busting deals.
Keeping an eye on price rises is important for growing your nest egg because if interest isn't at the same rate of inflation or more, your cash will effectively lose value over time.
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 | Al Rayan Bank* 5-Year Fixed-Term Deposit (Raisin exclusive**) | 4.55% | £5,000 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 | Oxbury Bank Personal 3-Year Bond Account | 4.66% | £1,000 minimum deposit |
| Three-year fixed-term cash Isa | Aldermore 3-Year Fixed-Rate Cash ISA | 4.5% | £1,000 minimum deposit |
| Two-year fixed-term savings account | Oxbury Bank Personal 2-Year Bond Account | 5.11% | £1,000 minimum deposit |
Source: Moneyfacts. Correct as of 20 March, 2024 but rates are subject to change. *The account from Al Rayan Bank is Shariah-compliant and so pays an 'expected profit rate' (EPR) as opposed to an 'annual equivalent rate' (AER). **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 on savings platforms.
February's significant drop in the CPI figure means that there are even more accounts with rates higher than inflation. Moneyfacts data shows 1,365 of savings accounts offer rates that beat inflation - that includes easy access, notice accounts, variable rate and fixed-rate Isas. That's up from the 953 accounts offering higher than inflation returns last month and adds up to 80% of the savings market.
Challenger and Islamic banks continue to offer the most competitive rates, with shorter-term fixed products boasting the highest interest deals. While some top fixed rates have decreased slightly over the past month, Moneyfacts claims that some providers have raised their interest in recent weeks.
Moneyfacts data shows that top variable rates across savings accounts and Isas also continue to hold steady, although that could change if the Bank of England decides to lower the base rate on Thursday in response to falling inflation.
How to cut costs when prices are still high
While the price of filling up your car at the pump has dropped dramatically over the past couple of years, it remains high and February saw it rise again. You may therefore want take steps to reduce costs and our guide on how to save fuel and other money-saving driving tips can help you do that – from tips on how often you need to fill up to where to go when you do.
And remember, while inflation on food may be easing, it doesn't mean that prices are falling, 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.
