It is imperfect to stay on top of your personal finances (Image: Getty)
Savers have been warned that inflation has eroded their savings pots by around £1,400 over the past five years. Experts warned they could face a similar fate in future if price pressures continue.
Since the previous inflation announcement, the Moneyfacts Average Mortgage rate has fallen from 5.71% to 5.64%. Meanwhile, the average two-year fixed rate has fallen from 5.83% to 5.73%, according to Moneyfactscompare analysis.
The average five-year fixed rate has fallen from 5.73% to 5.66% (Image: Getty)
The average five-year fixed rate has fallen from 5.73% to 5.66%. Borrowers remortgaging off an ultra-low five-year fixed rate face a £5,400-plus yearly increase on a typical £250,000 mortgage over 25 years.
Caitlyn Eastell, Personal Finance Analyst at Moneyfactscompare.co.uk, said: “The mortgage market remains highly reactive to ongoing shocks, and swap rates have continued to spike following escalating tensions in the Middle East and the uncertainty around the UK’s political landscape.
“Interest rates remaining higher for longer will quickly burden borrowers, squeezing their budgets and how much they can afford. Millions of households are due to remortgage, but those coming off an ultra-low five-year fixed rate should be prepared to see their repayments spike by more than £5,400 a year.
“First-time buyers may wish to choose a longer mortgage term as it can help with affordability pressures; however, it also means they may end up paying significantly more interest.
“Tracker mortgages can look competitive on price, but they leave borrowers more exposed to volatility, as any change in the Bank of England Base rate is directly passed through to monthly repayments.
“It’s crucial that borrowers seek advice to ensure they get the best possible deal to suit their needs.”
There are savings accounts available that beat inflation (Image: Getty)
For those conscious about saving, the Consumer Price Index (CPI) fell to 2.8% during April, from 3.3% in March. The Moneyfacts Average Savings Rate currently sits at 3.55%, which is above inflation, meaning savers can earn real returns on their cash, but it’s still important to shop around for the best rates.
There are currently 1,806 savings accounts that beat inflation* (202 easy access, 178 notice accounts, 180 variable rate ISAs, 410 fixed rate ISAs and 836 fixed rate bonds). In May 2025, there were 1,326 deals that could beat CPI, which was then at 3.5% (April 2025 CPI) and in May 2024, there were 1,558 deals that could beat CPI, which was at 2.3% (April 2024 CPI).
Eastell added: “Locking in savings rates has not shielded households from inflation, and savers who locked into a five-year term in May 2021 at a top rate of 1.40% may have exposed themselves to significant real-term losses.
“During that time, a £10,000 deposit would now be worth around a modest £10,700; however, with average inflation at around 4.6% per year, its purchasing power would’ve been drastically eroded. In today’s terms, the real value of the investment falls to around £8,600, equating to a real-term loss of around £1,400 over five years.
“While savings rates now sit far higher than in the ultra-low era, and as the top rates are moving in a positive direction, it remains crucial for savers to focus on true value instead of attractive headline rates. The Bank of England’s worst-case scenario projects inflation to reach 5.6% in Q2 of 2027.
“This runs the risk that even with today’s higher savings rates, returns may still lag if price shocks persist. To avoid the same fate of inflation-battered returns, savers need to take a more proactive approach by reviewing deals frequently, making use of their tax-free cash ISA wrappers and avoiding apathy with long-standing accounts that pay below average returns.”