Inflation rise is bad news for savers

With inflation now standing at 3.7%, new analysis from moneysupermarket.com shows that since December of last year, a higher rate tax payer with a savings pot of £30,000 would have seen the value of those savings depreciate by over £200, with standard tax payers losing up to £121.

To counter the rise in inflation, basic rate tax payers will now need an account paying at least 4.63% in interest to gain benefit in real terms from their savings, increasing to 6.17% for higher rate tax payers. Taxpayers in the new 50% tax band would need an account paying at least 7.41%.

Currently none of the 257 easy access savings accounts for balances of £1,000 pays enough interest to offset the effects of inflation and tax. The top paying account is the Coventry Building Society 1st Class Postal account which offers an interest rate of 3.00%.

Kevin Mountford, Head of Banking, moneysupermarket.com, said:

“There’s no denying that current inflation figures and low interest rates are having huge impact on customers’ savings. There is a danger that many will do nothing because of the belief that there is little point, but this is not the time to be apathetic. Yes, it’s getting harder to earn a positive return on your savings, but rather than sitting back and doing nothing, it is more important than ever for savers to proactively seek the best returns possible on their money.

“Given the low number of products which offer a return above inflation, savers really need to keep a close eye on the interest rate, especially on fixed-term accounts whose rate may come crashing down after the term ends. There are things you can do to maximise the return on your savings. For example, it’s a no-brainer to utilise your tax free ISA allowance which increased last month to £5,100 for cash savings, and consumers need to be aware of any withdrawal penalties attached to their account.”