Record inflation a ‘blow’ for savers

By Elliot Wright, 19th January 2010

Today's Bank of England announcement of the biggest increase in inflation since records began spells bad news for savers with only a handful of saving products now paying high enough interest to offset the effects of inflation.

With the Consumer Price Index surging to 2.9% in December from 1.9% in November, savers are being urged to protect their hard-earned cash by checking the rates offered on their account to ensure their savings pot is not eaten away by inflation.

Basic rate tax payers will now need an account paying at least 3.63% to benefit from their savings, but research by financial comparison site moneysupermarket.com shows that this is no easy feat.

Of the 261 easy access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax. The account that comes closest is the Coventry Building Society First Class Postal account which pays 3.3%.

Of the 261 easy access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax.

Regular savers fair slightly better with 14 of the 42 regular savings accounts paying interest higher than 3.63%.

While those looking for a mini-cash easy access ISA have been warned that only two ISAs currently pay above 2.9%, which is the rate needed for a return.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The inflation announcement is a real blow to savers who are finding it extremely hard to find a suitable place for their hard earned cash. When looking to choose a suitable savings product it is easy to forget the impact inflation can have, so it's vital savers keep a close eye on how their account stacks up.

"Inflation was dwindling for much of last year but today's numbers show it's very much back on the agenda and savers really have to be proactive to find the right deal.

"The potential good news from this announcement today is that banks and building societies will have to react accordingly so we could see savings rates increase in the near future. Today's record increase should mean a rise in base rates this year becomes much more likely which will be better news for savers."

Claims Financial