How you could beat inflation with your savings in 2023

Inflation hit 10.1% in January – down from the peak of 11.1% in October. However, it’s hardly a rapid descent.

The Bank of England (BoE) chief economist had warned that inflation could be sticky, so we might need to wait for the middle of this year for it to fall significantly.

For savers, this is incredibly frustrating. That’s because the spending power of their savings is being eaten alive by inflation.

To add to that, the big high street banks are awash with our lockdown savings. The number of mortgage approvals is also falling, so they’re not interested in generating much cash to back their mortgages either.

It means their easy access branch rates which are readily available are typically around 0.65%.

Fortunately, there’s some better news on the way.

This article isn't personal advice. If you're not sure what’s right for you, seek advice.

Learn more about inflation and how you could beat it

Better news for savers?

Things have been looking up on the savings front in recent months. The mini-budget that unleashed chaos on the mortgage market, also boosted the most competitive savings rates.

The average fixed rate term for up to one year jumped from 1.08% at the end of September to 2.4% by the end of December 2022.

Unfortunately, the rises weren’t as quick or as dramatic as they were in the fixed rate mortgage market, and are clearly a long way shy of 10.1%.

One-year fixed rate accounts at around 4% would’ve seemed a dream scenario when rates were at rock bottom. But with inflation running at over 10%, you’d be forgiven for thinking this is a drop in the ocean, and you’ll still lose significant chunks of money after inflation.

However, inflation looks backwards – at how prices have changed over the last 12 months, while fixed rates apply in the future. It means you don’t need to beat 10.1% to stay ahead of inflation, you need to beat whatever inflation turns out to be in the future.

Predicting the future of inflation is fraught with difficulty. However, the BoE says when it starts dropping back in the middle of this year, it expects it to make some decent ground, and fall to around 4% by the end of the year. It then thinks it will drop gradually over the following two years.

Of course, there are never any guarantees. But if it’s anywhere close to being right, there’s a chance that a competitive fixed rate savings deal could match or beat inflation.

What’s next for inflation in 2023?

What can savers do?

Savers don’t have to settle for miserable high street rates.

The most competitive deals available from smaller and newer banks online are far more rewarding. Some of the most competitive rates have pulled back in recent weeks, but there are still some better rates to be had.

Active Savings is one simple way to find a better rate.

It gives you access to consistently competitive, often market-leading rates from our bank and building society partners, through one online account. And you can pick and switch your savings in a handful of clicks.

Mix and match fixed term rates that range from a few months to five years, all alongside your emergency easy or limited access cash pot. There’s no limit to the number of products you can choose. Please remember fixed term products generally only allow access to funds at maturity and inflation reduces the spending power of money.

If you’re putting the money away for five to ten years or longer, it’s worth considering whether the stock market could be a suitable option. The value of your investments will likely fluctuate in the short term, but they have tended to beat inflation over the long term. If you’re unsure whether an investment is right for you, you should seek advice. Unlike the security offered by cash though there are no guarantees, so you could get back less than you invest.

Is there ever a bad time to invest in the stock market?

This website is issued by Hargreaves Lansdown Asset Management Limited (company number 1896481), which is authorised and regulated by the Financial Conduct Authority with firm reference 115248.

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Hargreaves Lansdown Asset Management Limited and Hargreaves Lansdown Savings Limited are subsidiaries of Hargreaves Lansdown plc (company number 2122142).