Inflation is soaring: 3 tips to boost the interest rate on your cash

The latest Consumer Price Index makes for sorry reading. Officially, inflation in the UK is running at 9% and many are fearful it will continue rising.

In simple terms, rising inflation is very bad news for savers. That's because inflation essentially erodes the value of money over time. The higher the rate of inflation, the bigger the impact.

So, when it comes to protecting the value of your cash, how can you combat rising inflation? Let's take a look at three ways to boost the interest rate on your cash.

What's the situation with inflation right now?

According to the Office for National Statistics, inflation in April 2022 was running at 9%, up from 6.2% in March. The Government's independent statistics provider will release new data for May on Wednesday 22 June and some are expecting double digits. The UK's inflation rate is already the highest it's been in over 30 years!

It's also worth pointing out that the Consumer Price Index (CPI) is just one measure of inflation. Other indexes report an even higher rate. For example, the less popular, Retail Price Index (RPI) topped 11.1% in April of this year.

The reason why the RPI figure is often higher than CPI is partly because the RPI includes elements of housing costs, whereas the CPI does not.

How does inflation impact savings?

Whichever inflation figure you prefer, one thing is for certain right now—prices of everyday goods and services are rising rapidly.

Rising inflation means that if you've savings, the value of your cash is eroding. For example, if inflation stands at 10% year-on-year, your savings are worth around 9.1% less than a year ago. In other words, £10,000 of savings would only buy you £9,091 worth of goods and services, compared to a year ago.

How can you boost the interest rate on your cash?

Unfortunately, there are no savings accounts that pay anything close to the rate of inflation. That said, if you're unhappy with rates on easy-access deals, there are ways to boost the interest rate on your cash. Remember, even if your savings rate is lower than inflation, it's still rational to maximise the interest rate on your cash as much as you possibly can.

Here are three tips to boost the interest rate on your savings:

Tip 1: Consider notice savings accounts

If you're fed up with misery rates on easy-access deals, notice savings accounts may fit the bill. Notice accounts are similar to easy-access in the way that you can withdraw cash at will. However, the main difference is that with notice accounts, you must give your savings provider advance notice before you can access your money. Notice periods are typically between 90 and 180 days.

Generally, savings rates on notice accounts beat easy-access deals. And while interest rates on notice accounts often fall short of the rates offered on fixed accounts, notice accounts don't require you lock away cash for a long period. To put it another way, notice accounts allow you to boost the interest rate on your cash, without the need to forgo access to your savings.

For more on notice savings accounts, take a look at our article that explores whether notice accounts are worth it.

Tip 2: Look at regular savings accounts

Headline interest rates on regular savings accounts are often impressive. However, regular savings accounts often attract criticism due to the fact that you can rarely put more than a few £100 into these accounts each month. Also, many of the top deals are reserved for customers of a particular bank or building society.

However, while regular savings accounts have their drawbacks, they're still worth considering if you're keen to boost the interest rate on your cash. That's because there's nothing stopping you opening a regular savings account, saving the max each month, and keeping any leftover cash in another type of savings account.

In other words, while you may not be able to get the headline interest rate on all of your spare cash, you can still grab yourself a decent rate on a proportion of your savings.

Tip 3: Consider opening a high-interest bank account

In years gone by, banks rarely paid interest on any cash held in a current account. As a result, it was common to hear the adage that you shouldn't keep your savings in a bog-standard bank account.

However, more recently, competition for customers has hotted up between current account providers. As a result, some current account providers now pay interest on cash balances. While there aren't an abundance of offerings out there right now, there are some current accounts that pay a higher rate of interest than is available via normal savings accounts.

Virgin Money's 'M' Plus Current Account is one such offering. This account pays 2.02% AER interest on up to £1,000. So, while it only pays this interest rate on a small sum, it still provides another option to boost the interest rate on your cash.

Remember, there's nothing stopping you holding a notice, regular, and interest-paying current account at the same time. In fact, this might be a shrewd strategy if you really want to max the interest rate on your cash—just be prepared for the extra admin involved with managing multiple accounts!

How can I find the best savings accounts available right now?

Saving rates change on a regular basis. So, to see a list of the top accounts right now—including easy-access, fixed, notice, and regular savings options—take a look at our best savings accounts guide.