Inflation rise puts savings under greater pressure
A combination of low interest rates and rising inflation means that savers are likely to see even poorer returns on their money.
News that the Consumer Prices Index rate of inflation has moved up to 1.9 per cent from 1.5 per cent, driven by increases in fuel and energy costs. has hit both basic and higher taxpayers.
To secure a return on their money, basic rate taxpayers need interest of 2.375 per cent on their accounts, while higher rate taxpayers require 3.166 per cent.
But according to Moneynet, the finance website, just nine out of 744 variable rate savings accounts are offering these rates this month. In November, the figure was 69 out of 744.
Andrew Hagger of Moneynet said: “The savings market is looking increasingly desperate for high rate taxpayers, and we’ve reached a situation where there’s virtually no incentive to save.
“With inflation forced to climb further, basic rate taxpayers will soon be faced with a similar miserable situation.”
Mr Hagger predicted that there was unlikely to be any improvement until the official Bank rate starts to climb, but warned that this may be another six to 12 months in the future.
Another study, carried out by financial information organisation Moneyfacts, found that the average interest rate on no notice savings accounts is a meagre 0.81 per cent.
Taking inflation and tax into account, many accounts are actually delivering returns of -1.25 per cent.
In a review of the whole year, Moneyfacts said that there had been an increase in the number of savings products available to people but that in most cases interest rates have fallen by an average of 0.5 per cent.
Only those savers who are prepared to tie their money up in long-term bonds have benefited.
On a typical three-year bond interest rates have climbed 0.64 per cent to 4.1 per cent this year. In contrast, rates for one-year bonds, and for notice and easy access accounts, have all shown a decline.
Michelle Slade of Moneyfacts commented: “Those that rely on the income from their savings to supplement their income, such as pensioners, have been the hardest hit.”