20 Apr 2024

Jump in inflation punishes savers

Inflation figures released today show that the Consumer Price Index (CPI) has increased by more than expected to 3.40%.

To stop their savings pot effectively eroding away, a basic rate tax payer needs to find an account paying 4.25%, while a higher rate tax payer needs to find an account paying 5.64%.

Basic rate tax payers have a choice of 44 accounts to break even, while only 4 accounts are available to higher rate tax payers.

Inflation continues to lessen the real return savers can achieve. The real return after basic tax and inflation on an average no notice account today stands at minus 2.82%.

Michelle Slade, spokesperson for Moneyfacts.co.uk commented:

“The rise in inflation is another bitter blow to savers who were already struggling to achieve a competitive rate of return on their money.

“Prudent savers continue to be neglected and are finding it virtually impossible to combat the effects of tax and inflation.

“Basic rate tax payers need to earn 4.25% just to break even, while higher rate tax payers need to earn 5.64%, a level that is only available on a handful of products in the cash savings market at present.

“The majority of products that do beat tax and inflation also require you to open a more riskier investment product or hold a current account with the provider.

“Savers are more inclined to invest their money in fixed rate bonds in order to achieve a more competitive rate of return, but to beat tax and inflation you will need to commit funds for at least three years.

“As base rate is likely to rise in the next few years, most savers are looking for a shorter commitment.

“Many savers, particularly pensioners, use the interest on their savings to supplement their income. Record low interest rates have already greatly reduced the income they receive on their money and rising inflation just exacerbates the problem.

“In normal circumstances such a high level of inflation would likely see the Bank of England raise base rate, but these are not normal economic conditions.

“For savers a rise in bank rate can’t come soon enough.”

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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