Erin Yurday
Author
Do savings rates beat inflation? Real returns, tax and account types explained
19 October 2026
4 min read
The guidance on this site is based on our own analysis and is meant to help you identify options and narrow down your choices. We do not advise or tell you which product to buy; undertake your own due diligence before entering into any agreement.
Figures in this article come from the Bank of England, the ONS and Moneyfacts, as published on the dates given. Moneyfacts figures are averages across the accounts it tracks, which don't cover the whole market. Rates change often, so check current rates before choosing an account.
If your savings earn less interest than the rate of inflation, the money in your account buys less over time, even though the balance grows. This is the difference between a nominal return (the interest rate) and a real return (the interest rate minus inflation).
Inflation now
CPI inflation was 3.1% in the 12 months to August 2026, according to the ONS. It was 2.6% in June and 2.9% in July, with higher energy costs the biggest upward contributor. Inflation peaked at 11.1% in October 2022, the highest in 41 years. The Bank of England's target is 2%.
Interest rates now
Average rate, September 2026 | Compared with CPI (3.1%, August 2026) | |
Instant access | 2.06% | 1.04 points below |
One-year fixed bond | 4.35% | 1.25 points above |
Two-year fixed cash ISA | 4.53% | 1.43 points above |
Sources: Bank of England (series IUMB6VJ, IUMWTFA, IUMZID2); ONS (CPI). September CPI is published on 21 October 2026. Before tax. Comparisons are our calculation.
At its latest decision on 5 November 2026, the Bank of England raised the Bank Rate from 3.75% to 4%. The next decision is due on 17 December 2026. The Bank Rate isn’t the rate you’ll get on products like a credit card, mortgage or savings account, but it influences them.
Between 2021 and 2023, inflation rose much faster than savings rates, so savings lost spending power even as rates went up. From late 2023, average fixed rates moved above inflation, but average instant-access rates stayed close to or below it. The chart uses CPIH, which includes owner occupiers' housing costs. CPIH peaked at 9.6% in October 2022, lower than the CPI peak of 11.1% quoted above.
These are averages. Rates on individual accounts can be higher or lower. Some of the highest easy-access rates include a bonus for the first 6 to 12 months, after which the rate falls. Regular savers can offer higher headline rates but usually limit how much you can pay in each month. See our savings accounts guide for current rates.
Tax on savings interest
Interest above your Personal Savings Allowance is taxed:
Income tax band | Personal Savings Allowance | Tax rate on savings interest, 2026/27 | From 6 April 2027 |
Basic rate | £1,000 | 20% | 22% |
Higher rate | £500 | 40% | 42% |
Additional rate | £0 | 45% | 47% |
Some people with low earnings can also use the starting rate for savings, which can make up to £5,000 of interest tax-free. Interest in a cash ISA is tax-free. From 6 April 2027, the cash ISA limit will be £12,000 a year for people under 65.
More people are paying tax on savings interest. HMRC figures obtained by AJ Bell put the number at about 2.64 million for 2025/26, up from about 647,000 in 2021/22.
Tax reduces your real return. For example, a basic-rate taxpayer who has used their allowance and earns 4.35% on a one-year fixed bond would keep about 3.48% after 20% tax, 0.38 points above August's 3.1% inflation. At the 22% rate that applies from April 2027, they would keep about 3.39%. Interest in a cash ISA isn't taxed, so the 4.53% average on a two-year fixed cash ISA stays at 4.53%.
Types of savings account
Account type | How it works | Things to check |
Easy access | Pay in and withdraw when you like | Introductory bonuses that end after 6–12 months; withdrawal limits on some accounts |
Notice | Give notice (for example, 14 to 180 days) before withdrawing | Notice period; whether the rate can change during it |
Fixed-rate bond | Rate fixed for a set term; money usually locked in | Early access penalties; what happens at maturity |
Regular saver | Pay in a set amount each month, usually for 12 months | Monthly deposit limits; the rate applies only to what's paid in |
Cash ISA | Interest is tax-free, within the ISA allowance | Easy-access, notice or fixed versions; ISA limit changes from April 2027 |
This article doesn't cover every savings account on the market and is not financial or tax advice.
Read more:
Erin Yurday
Author
19 October 2026
4 min read
The guidance on this site is based on our own analysis and is meant to help you identify options and narrow down your choices. We do not advise or tell you which product to buy; undertake your own due diligence before entering into any agreement.
Meet the author
Author
Erin Yurday
Erin was the founder of NimbleFins, a data driven personal finance site. A former derivatives trader and finance expert at the Stanford Graduate School, Erin turns research into plain answers so you can understand your credit.
Do savings rates beat inflation? Real returns, tax and account types explained
Erin Yurday
Author
19 October 2026
4 min read
The guidance on this site is based on our own analysis and is meant to help you identify options and narrow down your choices. We do not advise or tell you which product to buy; undertake your own due diligence before entering into any agreement.
Figures in this article come from the Bank of England, the ONS and Moneyfacts, as published on the dates given. Moneyfacts figures are averages across the accounts it tracks, which don't cover the whole market. Rates change often, so check current rates before choosing an account.
If your savings earn less interest than the rate of inflation, the money in your account buys less over time, even though the balance grows. This is the difference between a nominal return (the interest rate) and a real return (the interest rate minus inflation).
Inflation now
CPI inflation was 3.1% in the 12 months to August 2026, according to the ONS. It was 2.6% in June and 2.9% in July, with higher energy costs the biggest upward contributor. Inflation peaked at 11.1% in October 2022, the highest in 41 years. The Bank of England's target is 2%.
Interest rates now
Average rate, September 2026 | Compared with CPI (3.1%, August 2026) | |
Instant access | 2.06% | 1.04 points below |
One-year fixed bond | 4.35% | 1.25 points above |
Two-year fixed cash ISA | 4.53% | 1.43 points above |
Sources: Bank of England (series IUMB6VJ, IUMWTFA, IUMZID2); ONS (CPI). September CPI is published on 21 October 2026. Before tax. Comparisons are our calculation.
At its latest decision on 5 November 2026, the Bank of England raised the Bank Rate from 3.75% to 4%. The next decision is due on 17 December 2026. The Bank Rate isn’t the rate you’ll get on products like a credit card, mortgage or savings account, but it influences them.
Between 2021 and 2023, inflation rose much faster than savings rates, so savings lost spending power even as rates went up. From late 2023, average fixed rates moved above inflation, but average instant-access rates stayed close to or below it. The chart uses CPIH, which includes owner occupiers' housing costs. CPIH peaked at 9.6% in October 2022, lower than the CPI peak of 11.1% quoted above.
These are averages. Rates on individual accounts can be higher or lower. Some of the highest easy-access rates include a bonus for the first 6 to 12 months, after which the rate falls. Regular savers can offer higher headline rates but usually limit how much you can pay in each month. See our savings accounts guide for current rates.
Tax on savings interest
Interest above your Personal Savings Allowance is taxed:
Income tax band | Personal Savings Allowance | Tax rate on savings interest, 2026/27 | From 6 April 2027 |
Basic rate | £1,000 | 20% | 22% |
Higher rate | £500 | 40% | 42% |
Additional rate | £0 | 45% | 47% |
Some people with low earnings can also use the starting rate for savings, which can make up to £5,000 of interest tax-free. Interest in a cash ISA is tax-free. From 6 April 2027, the cash ISA limit will be £12,000 a year for people under 65.
More people are paying tax on savings interest. HMRC figures obtained by AJ Bell put the number at about 2.64 million for 2025/26, up from about 647,000 in 2021/22.
Tax reduces your real return. For example, a basic-rate taxpayer who has used their allowance and earns 4.35% on a one-year fixed bond would keep about 3.48% after 20% tax, 0.38 points above August's 3.1% inflation. At the 22% rate that applies from April 2027, they would keep about 3.39%. Interest in a cash ISA isn't taxed, so the 4.53% average on a two-year fixed cash ISA stays at 4.53%.
Types of savings account
Account type | How it works | Things to check |
Easy access | Pay in and withdraw when you like | Introductory bonuses that end after 6–12 months; withdrawal limits on some accounts |
Notice | Give notice (for example, 14 to 180 days) before withdrawing | Notice period; whether the rate can change during it |
Fixed-rate bond | Rate fixed for a set term; money usually locked in | Early access penalties; what happens at maturity |
Regular saver | Pay in a set amount each month, usually for 12 months | Monthly deposit limits; the rate applies only to what's paid in |
Cash ISA | Interest is tax-free, within the ISA allowance | Easy-access, notice or fixed versions; ISA limit changes from April 2027 |
This article doesn't cover every savings account on the market and is not financial or tax advice.
Read more:
Erin Yurday
Author
19 October 2026
4 min read
The guidance on this site is based on our own analysis and is meant to help you identify options and narrow down your choices. We do not advise or tell you which product to buy; undertake your own due diligence before entering into any agreement.
Meet the author
Author
Erin Yurday
Erin was the founder of NimbleFins, a data driven personal finance site. A former derivatives trader and finance expert at the Stanford Graduate School, Erin turns research into plain answers so you can understand your credit.