Inflation and your savings: is your money actually growing?
Most people don’t sit down and think about inflation until something forces them to. Maybe it’s the energy bill. Maybe it’s the weekly shop. Maybe it’s glancing at your savings account and realising the number hasn’t moved much despite you adding to it every month.
That feeling is inflation doing its job on your finances. Quietly, consistently, and without asking permission.
As of March 2026, UK CPI inflation is at 3.3%. That’s up from 3% in January and February, partly driven by rising fuel costs linked to the ongoing conflict in the Middle East. The Bank of England now expects inflation to stay between 3% and 3.5% for most of this year. We were supposed to be back near 2% by now. We’re not.
So if your savings are sitting in an account paying 1.5% or less, you’re going backwards. Not dramatically, not overnight, but steadily. And that matters.
What most people overlook: real return vs nominal return
Your bank statement shows a number going up. That feels fine. But the number on a page isn’t the same as purchasing power.
Here’s a simple way to think about it:
- Your savings account pays 1.5% interest
- Inflation is running at 3.3%
- Your real return is roughly minus 1.8%
That means £20,000 today effectively buys what £19,640 would have bought a year ago. You haven’t lost money on paper. But you’ve lost ground in the real world.
This is why keeping your money safe in cash isn’t always as safe as it sounds, at least not for the long term.
So is cash a bad idea?
No. Cash definitely has its place. A proper emergency fund covering three to six months of outgoings should absolutely sit somewhere accessible, like an easy-access savings account or Cash ISA. You don’t want to be selling investments at short notice because of an unexpected expense.
Similarly, for those taking a regular income from their investments and pensions, a financial plan would build in a certain amount kept back in cash to cover these income withdrawals for the times where it may not make sense to take them from the invested money.
But beyond that buffer, cash working at a poor rate is a slow leak in your financial plan.
A few things worth knowing about cash savings right now:
- The FSCS protection limit increased to £120,000 per person, per institution in December 2025, up from £85,000
- Basic-rate taxpayers can earn up to £1,000 in interest tax-free each year outside an ISA – this is known as the Personal Savings Allowance (PSA). Higher-rate taxpayers only get £500. Additional-rate taxpayers get none.
- Once you exceed that allowance, you’re paying tax on your interest at your marginal rate
That last point catches more people than you’d think, especially with frozen income tax thresholds pushing more savers into higher-rate territory.
It can also have impacts on things like Child Benefit, Tax-Free Childcare and Free Childcare hours, loss of the personal allowance, and the tapered annual allowance for pensions.
How to protect your savings from inflation
Use your cash ISA allowance: especially this year
Cash ISAs aren’t exciting. But right now, the best easy-access Cash ISAs are paying around 4.32% AER. One-year fixed-rate ISAs are going up to 4.66% to 4.71% AER. At 3.3% inflation, those are genuinely inflation-beating rates (Source: https://moneyweek.com/personal-finance/savings/isas/best-cash-isas).
Every adult in the UK gets a £20,000 ISA allowance per tax year, and every penny of interest is tax-free. It doesn’t even touch your Personal Savings Allowance.
Here’s why this year matters more than usual:
- From April 2027, the cash ISA allowance drops to £12,000 for under-65s
- The 2026/27 tax year is the last one where anyone under 65 can shelter the full £20,000 in cash
- Unused allowance doesn’t roll over. If you don’t use it, it’s gone
It’s worth acting on this sooner rather than later. Although take care if you’re using any of your ISA allowance for Stocks and Shares investments.
Lock in a rate with a fixed-rate bond
If you’ve got money you genuinely won’t need for a year or more, a fixed-rate savings bond can give you certainty. Rates of 4.6% to 4.79% AER are available right now on fixed terms and they won’t move if the base rate gets cut later in the year. (Source: https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/)
The obvious caveat: your money is locked away. There’s usually no way to access this money during that fixed-rate period. So before you fix anything, make sure your emergency fund is topped up and accessible elsewhere.
Inflation-linked options worth understanding
Index-linked gilts are government bonds where both the interest payments and the capital value rise with RPI. They’re not generally something you’d buy directly. They tend to sit inside a broader investment portfolio, but they’re one of the few instruments actually built to move with inflation rather than trail behind it.
NS&I has offered a retail equivalent before: index-linked savings certificates, tax-free and RPI-tracked. They’re off sale at the moment, but if inflation stays high it’s worth watching for them to come back.
Think beyond cash for longer-term goals
For money you won’t need for five years or more, staying entirely in cash is often the bigger risk, not the stock market. A diversified stocks and shares ISA or pension has historically grown more than inflation over the long run, though of course past performance doesn’t guarantee future returns and values can fall.
If you’re already paying into a workplace pension, check how it’s invested. The default fund isn’t always the right one for your situation.
The real cost of doing nothing
Inertia is expensive. £50,000 in a legacy account paying 1.5% instead of 4.3% costs you roughly £1,400 a year in lost interest. Over five years, that’s a significant sum, and that’s before you factor in the compounding effect of reinvested interest you never earned.
A lot of people know, somewhere in the back of their mind, that their savings need attention. They just haven’t got around to it. That delay has a real cost, and the longer inflation stays above 3%, the bigger that cost gets.
Switching savings accounts or opening a Cash ISA takes far less time than most people expect. The barrier is almost always habit, not complexity.
Talk to us at Fairview Financial Management
Inflation hits everyone differently. Your age, goals, tax position, and current savings all matter. There’s rarely one right answer, but there’s almost always a better one than where most people’s money is sitting.
We’re independent financial advisers based in Essex. No ties to a particular bank or investment provider. Just an honest look at your full picture and a clear view of what we’d actually recommend.
Whether it’s your ISA, a fixed-rate options, or your overall strategy, we’re happy to talk it through.
Get in touch with Fairview today and let’s put your savings to work.