UK inflation spike “bitter blow” for savers

16th February 2010

Savers face further misery as the Bank of England announced the UK inflation rate surged from 2.9% to 3.5% in January.

The current rate means that only a handful of savings products now pay high enough interest to offset the effects of inflation.

2010 has so far proved disastrous for savers, with increasing inflation and the average rate of the top five savings accounts plummeting to just 2.86% from 3.04% at the turn of the New Year.

Comparison site moneysupermarket.com is urging savers 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 4.62% to gain benefit in real terms from their savings, increasing to 6.17% for higher rate tax payers, yet research by experts at moneysupermarket.com shows this is no easy feat.

Of the 262 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 best paying easy access account is Coventry Building Society's 1^st Class Postal account paying 3.15 per cent.

Of the 262 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 only fair slightly better with 3 of the 57 regular savings accounts paying interest higher than 4.62 for basic rate tax payers there are no accounts paying higher than 6.17 per cent.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The latest inflation news is a bitter blow for savers. 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."

"Unfortunately we have yet to see any movement from banks in reaction to last month's inflation announcement. We have actually seen a fall in savings rates since the start of the year so I hope we will start to see a change upwards so savers don't lose out even more.

Claims Financial