Inflation steady at 3.8% but for savers "real returns are at real risk"
FINANCIAL experts and IFAs have cautioned savers that “real returns are at real risk” as inflation holds steady and “to seriously consider whether part of their long-term money should be working harder through investing”.
The Consumer Prices Index (CPI) rose by 3.8% in the 12 months to August 2025, unchanged from July, according to official data published this morning. On a monthly basis, CPI rose by 0.3% in August 2025, the same rate as in August 2024.
Air fares made the largest downward contribution to the monthly change in both CPIH and CPI annual rates; restaurants and hotels, and motor fuels made large, partially offsetting, upward contributions.
Rob Mansfield, Independent Financial Advisor at Tonbridge-based Rootes Wealth Management, said real returns are at risk for those in cash: “There's no respite from inflation and it's eating away at savings. What was worth £1 last year is now only worth 96.3p and so unless your cash interest rate was more than 3.8%, you lost money over the past year."
He added: "If you've got long-term savings held in cash, you may want to think about investments to try and offset inflation. Real returns are at real risk.”
Eamonn Prendergast, Chartered Financial Adviser at Bromley-based Palantir Financial Planning Ltd, said: "Inflation at 3.8% may not sound dramatic, but it’s quietly devastating for anyone sitting on large cash balances. Over five years, compounding has stripped a quarter off the real value of money.
“Savers feel safe in cash, but the safety is an illusion, inflation is the silent tax. Short-term cash for flexibility makes sense, but long-term wealth needs to work harder through investment if it’s going to outpace rising prices.”
Philly Ponniah, Chartered Wealth Manager and Financial Coach at Philly Financial, agreed: "Inflation sticking at 3.8% is eating into savings faster than most easy-access accounts are growing. The real value of money is shrinking unless people are in the very top-paying accounts.
“For savers, now is the time to lock in the best fixed rates available while they last, keep some cash liquid for flexibility, and seriously consider whether part of their long-term money should be working harder through investing. Sticking only with cash may feel safe, but over time inflation is the bigger risk to wealth.”
Benjamin Beck, Money Coach at Beck Money Coach, added: “If you stay a saver, this means you need to find an account paying more than 3.8% in interest to retain the value of your hard-earned cash.
"If you haven't, consider investing, as it's the only way to grow your assets, otherwise watch them deteriorate over time.”
Scott Gallacher, Director at Leicester-based Rowley Turton, said: "With inflation stuck at 3.8%, savers are seeing the real value of their money continue to erode, even if headline cash rates look attractive. The Bank of England is likely to hold rates tomorrow, but savers can at least take comfort that deposit rates remain relatively high.
“The key now is to shop around for competitive accounts and make full use of ISAs and allowances – particularly for higher-rate taxpayers, whose much smaller Personal Savings Allowance and 40% tax charge can reduce even the best account rates to below inflation. Longer-term money may need to work harder in investments rather than sitting in cash.”
David Belle, Founder and Trader at Fink Money, said inflation is more of a UK problem than it is elsewhere: "Though inflation held steady, this is still a headache for the Bank of England. Across the pond, US CPI came in at 2.9% versus 3.8% here. This suggests inflation is much more a UK problem than elsewhere.
"This will likely impede growth since Reeves will be raising tax while the Bank of England has to hold rates higher. Bond buyers might be happy to buy at these yields, though, since there has not been a greater than consensus print here, implying perhaps a US interest rate cut drives global yields lower."
