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Recent data shows that everyday savers have been losing money for 16 months in a row* in real terms. That’s because while inflation has risen, many cash savings rates have not kept up.
*up to February 2026. Source: Savers urged to be active as interest rates continue to lag inflation | Quilter Media Centre
When inflation rises faster than savings rates, the value of your money can fall without you noticing. Over time, this can mean your money buys less than it used to. This short guide explains how inflation affects savings, why it matters, and what simple steps you can take to protect the value of your money.
How inflation reduces the value of your money
Inflation measures how much the cost of everyday goods and services increases over time. If inflation is higher than the interest rate on your savings account, your money loses buying power. In simple terms, it doesn’t stretch as far as it used to. For example, if inflation is 3% and your savings are earning 2% interest, prices are rising faster than your money is growing. Even though your balance may look bigger, its real value is shrinking. This has been the experience for many savers over the past year and more, particularly where cash ISAs and instant access accounts have paid lower rates than inflation.
Why savings rates don’t always keep up with inflation
Savings rates do not always keep up with inflation because banks usually base them on the Bank of England base rate. When that rate changes, banks may increase or reduce the rates they offer to savers. As a result:
- interest rates on some cash ISAs may stay the same for long periods
- instant access accounts can offer relatively low returns
- some accounts may still pay very little interest.
The impact is simple. If you don’t review your savings, your money could continue to lose value over time, even when inflation is easing.
Taking a longer‑term view: how investing can help
Savings accounts play an important role, especially for short‑term needs or emergency money. But over longer periods, cash savings can struggle to keep pace with inflation. Historically, investing over the long term has offered a better chance of maintaining or growing the real value of money. While savings tend to lose value gradually as prices rise, investments have, over time, grown more strongly on average.
That said, investing isn’t right for everyone or every situation. The value of investments can go down as well as up, and you could get back less than you put in.
Practical steps you can take
There’s no single right approach, but these steps can help you stay in control.
- Review your savings regularly
Savings rates can vary widely and change often. Checking your accounts from time to time and moving money to better‑paying options could help reduce the impact of inflation. - Match your money to your timeframe
Different goals suit different approaches:- Short‑term needs (0–3 years): cash is usually most appropriate, but it’s worth shopping around for better rates
- Medium‑term goals (3–5 years): a mix of savings and investing may be worth considering
- Long‑term goals (5 years or more): investing may offer better protection against inflation over time
- Make sure you understand what you’re doing
If you choose to invest, it’s important to understand how your money is invested and the risks involved. If you’re unsure, a financial adviser can help you think things through. - Take a steady approach
Markets rise and fall, sometimes sharply. Investing works best when it’s seen as a long‑term commitment rather than a short‑term decision. - Be cautious of ‘too good to be true’ offers
Periods of high inflation can lead to more scams and unregulated schemes. Always check that a company is authorised by the Financial Conduct Authority before handing over money. - Stay ahead of inflation
Inflation can quietly erode the value of your savings when interest rates fall behind rising prices. By being more active with your cash and thinking carefully about longer‑term options, you can give your money a better chance of keeping its value over time.
FAQs
How often should I review my savings account?
It can help to check your savings periodically, especially if your account is easy access. Rates can change, and different providers may offer different returns at different times.
Is keeping money in cash ever the right choice?
Cash can be useful for short‑term goals and emergencies, where you might need the money soon and don’t want to take investment risk. Many people keep a cash buffer for unexpected costs before thinking about longer‑term options.
Is my money protected in a savings account?
Many UK savings accounts are covered by the Financial Services Compensation Scheme (FSCS), up to the applicable limit per eligible person, per provider. If you’re unsure, check whether your provider is covered and how protection applies to your account type.
What if markets fall after I invest?
Investments can go down as well as up. Short‑term drops can happen, even when the long‑term aim is growth. This is one reason why investing is usually approached as a longer‑term decision, rather than something you might need to reverse quickly.
Approver Quilter May 2026
