Inflation nags away at savings
The latest rise in inflation will make life even more difficult for savers who are trying to find an account that gives them a real return on their money.
According to the Office for National Statistics (ONS), the consumer price index rate of inflation for September rose from August’s 3.1 per cent to 3.2 per cent.
As a consequence, savings accounts look likely to suffer.
In order to safeguard savings from the corrosive effects of inflation, basic-rate taxpayers now need to find an account paying 4 per cent in interest, while a higher-rate taxpayer needs to find an account offering 5.33 per cent.
The average instant access savings rate is 0.79 per cent.
The new inflation figures mean that the average savings of a basic-rate taxpayer are declining by 2.5 per cent annually.
Andrew Hagger of financial website Moneynet pointed out that no instant access accounts currently outstrip both inflation and tax charges, and that not even one-year fixed-rate bonds will firewall saver from losses.
If they wish to beat inflation, basic-rate taxpayers will need to tie their funds up for a minimum of three years to secure the sort of interest rate returns that outflank rises in the cost of living.
For higher rate taxpayers, no instant access or fixed-rate accounts currently exist that will stave off the erosion of inflation and taxes, said Moneynet.
Mr Hagger added: “I can’t see savings rates going up unless there is an increase in the Bank of England base rate, but economists are not factoring in a base rate rise for at least 6-12 months, so unfortunately it remains a gloomy outlook for savers.”
Darren Cook, of website Moneyfacts, agreed: “That stealthy enemy called inflation is quietly but aggressively eroding away the spending power of a saver’s hard-earned nest egg. It is difficult for savers, at best they should try to stay within an arms length of inflation and try to weather the storm of low rates and high inflation.
“It is likely that the New Year may bring further bad news for savers as the increase in VAT is likely to add to the inflationary headache.”