Go Direct Personal Finance News 2011 - Inflation headache returns for savers

27 Apr 2024

Inflation headache returns for savers

Inflation 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.”

Inflation beating accounts

Provider	Account	Rate	Term	Minimum Investment
Chelsea BS	Combination Fixed Rate ISA	5.00%	30.9.12	£1,000*
Yorkshire BS	Combination Fixed Rate ISA	5.00%	30.9.12	£1,000*
Barnsley BS	Combination Fixed Rate ISA	5.00%	30.9.12	£1,000*
Birmingham Midshires	5 Year Fixed Rate ISA	4.65%	5 Years	£500
Clydesdale Bank	Cash ISA Fixed Rate Bond Issue 11	4.50%	29.4.16	£2,000
Yorkshire Bank	Cash ISA Fixed Rate Bond Issue 11	4.50%	29.4.16	£2,000
Principality BS	ISA Builder 5-Year Plan	4.50%	5 Years	£5,340**
United Trust Bank	5 Year Fixed Cash ISA	4.45%	5 Years	£5,340
* Savers must invest at least 70% of total investment in an Aviva investment product. Source: Moneyfacts.co.uk 15.8.11

Inflation linked accounts (listed alphabetically)

Provider	Account	Rate	Term	Minimum Investment
Cambridge BS	Inflation Linked Bond	1.00% plus RPI	16.9.16	£5,000
NS&I	Index Linked Savings Certificates	0.50% plus RPI*	5 Years	£100
Post Office	Inflation Linked Bond Issue 2	0.50% plus RPI	10.10.14	£500
Post Office	Inflation Linked Bond Issue 2	1.50% plus RPI	11.10.16	£500
Santander	Inflation Linked Bond Issue 4	110% of the growth in the Retail Prices Index (RPI), or a guaranteed minimum return of 12%, plus original investment returned	1.4.17	£1
Yorkshire BS	Protected Capital Account – Inflation Linked 8	100% of the growth in the Retail Prices Index (RPI), or a guaranteed minimum return of 16%, plus original investment returned	15.9.17	£3,000
Yorkshire BS	Protected Capital Account – Inflation Linked 7	100% of any annual growth in the Retail Prices Index (RPI), or a guaranteed minimum of 1.5%, plus original investment returned on maturity	17.10.17	£3,000
* Interest earned tax-free Source: Moneyfacts.co.uk 15.8.11

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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