How to protect your savings from inflation
Are you losing money without even realising it?
Over the last few years the UK inflation rate has risen at its fastest rate for over 30 years. You’ve probably already seen the impact of that in your daily life – the price of just about everything has gone up. But inflation doesn’t just affect the money you spend. It can shrink the value of your savings, too. In this article we explain how that works, and share some tips on how to deal with it.
What is inflation?
The inflation rate tells you how much prices increase over a time.
It’s usually given as a percentage, describing how much prices rise every year. So if there’s a 10% inflation rate, a product that costs £1 right now will cost £1.10 in a year’s time. The product won’t have changed in any way, but its price will have increased by 10p, in line with that 10% inflation rate.
How does inflation affect my savings?
One way to understand the inflation vs savings battle, is to imagine stuffing £100 under your mattress for a few years. What will happen to this money? On the face of it, not a lot. No matter how long you leave it there, there will always be £100 tucked under your mattress.
But when you come to spend your £100, inflation means you won’t be able to buy as much with it as you could when you first put it there. Its buying power will go down, as inflation pushes prices up. You might need £110 to buy something that cost £100 when you first stashed your money away.
Looking at it another way, imagine that you lift up your mattress tomorrow and there’s only £90 there! You’ve lost £10 in the time that it’s been tucked up.
Does this feel like a good return for your hard-earned money? Not at all. And that’s the impact of inflation on savings.
Cash ISAs and inflation
The same thing can happen to cash savings that have interest rates below the rate of inflation. If the interest rate you get on your cash ISA is less than the inflation rate, then you’re losing money as well.
Currently, savers have nearly £300 billion sitting in cash ISA accounts. And savings interest rates are generally higher than inflation. But this hasn't always been the case, and if cash ISA interest rates fall below the rate of inflation that can have a big impact on savings.
What's the impact of inflation on savings?
The Bank of England has an inflation target of 2%. While it hasn't met this target since 2021, let's take a look at what that would mean if you had £1,000 in savings:
- If inflation hit that target of 2%, over five years you would still lose around £100, leaving you with £900
- If inflation settled at 4%, as it did in August 2025, you would lose nearly £200, leaving you with £800
- If inflation rose as high as it did in December 2022, when it was 9%, it would take less than 10 years for your £1,000 to effectively halve, leaving you with less than £500
That’s why it’s so important to know how to protect savings from inflation. UK savers aren’t always aware of it, because inflation has been so low for the last three decades.
How do I protect my savings from inflation?
Our three tips can:
- Make your money work harder for you
- Help its buying power stay strong
As a rule of thumb it's a good idea to have enough tucked away to cover your essentials for three months, so should the unexpected happen, you’ll be ready. That includes bills, rent or mortgage payments, travel and food costs. The money should be easy to access.
Next, if you have some money saved in a cash ISA, make sure you're getting the best interest rate available. It's usually easy to switch if you don't have a fixed product, but generally the longer you're willing to commit, the better rate you'll get.
Finally, if you have money that you're happy to put away for at least five years, think about putting it into a stocks and shares ISA. They're designed as mid-to-long term investments so can beat inflation over time, but you should only invest your money if you can afford to wait out any fall in its value. Of course, past performance doesn't guarantee future outcomes. And the value of your investment will go up and down, so you may get back less than you put in.
What should I do next?
It might be time to check how your savings are doing against inflation. If you find that they aren’t keeping up, and maybe even losing value, think about following our three tips above. And if you decide you’d like to invest in a stocks and shares ISA, you can visit our:
- Stocks and Shares ISA page to find out more about it
- Types of ISA page for some general background on ISAs
- Investing for Beginners page for a broader introduction to investment
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What is a stocks and shares ISA?
Cash ISA vs stocks and shares ISA
