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Inflation Headache Returns for UK Savers

Personal_Finance / Savings Accounts Aug 16, 2011 - 06:29 AM GMT

By: MoneyFacts

Personal_Finance

Best Financial Markets Analysis ArticleInflation figures released today show the Consumer Prices Index (CPI) rose during July from 4.2 per cent to 4.4 per cent.

To beat inflation, a basic rate taxpayer at 20 per cent needs to find a savings account paying 5.50 per cent per annum, while a higher rate taxpayer at 40 per cent needs to find an account paying at least 7.33 per cent.


Basic rate taxpayers can choose from 8 accounts that negate the effects of tax and inflation, all of which are fixed-rate ISAs.

Disappointingly, there are only 3 accounts available that beat Retail Price Index at 5.00 per cent. All of which require savers to open another investment product to qualify.

The effect of inflation on savings means that £10,000 invested five years ago allowing for average interest and tax at 20 per cent would have the spending power of just £9,374 today.

Michelle Slade, spokesperson for Moneyfacts, said:

“The latest rise in CPI will continue to antagonise savers, leaving them very few options to negate the effects of tax and inflation.

“At today’s rate of inflation a basic rate taxpayer will need to find an account paying 5.50 per cent, while a higher rate taxpayer needs 7.33 per cent to achieve a real return on their savings.

“Anything less means the spending power of their capital is being eroded. Already £266 has been wiped off the spending power of £10,000 in just five years.

“Savers who rely on the interest from their savings to supplement their income, many of which are pensioners, will be hit the hardest.

“This time last year basic rate taxpayers had a choice of 91 accounts to negate the effects of inflation, today there are just 8 and all are fixed-rate cash ISAs.

“In his latest inflation report, Mervyn King, Governor of the Bank of England, predicted inflation would get worse before it gets better.

“While savers may not be able to negate the effects of inflation, they should try to limit its effects by searching out the most competitive rates.”  

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.


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