18 Apr 2024

Savers’ hardship continues unabated

Inflation figures released today show the Consumer Prices Index (CPI) fell during May, from 3.00% to 2.8%.

To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 3.50% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 4.70%.

Today there is a choice of 210 standard savings accounts that taxpayers can choose from to negate the impact of tax and inflation.

The impact of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £9,209
today.

Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said:

“Today’s fall in CPI is to be welcomed, although the nation’s savers will be slow to cheer as their hardship continues with little relief.

“UK savers are not fat cats moaning because their huge investments aren’t making enough; they are predominantly people who have saved all their lives to help supplement incomes when they retire. It is sad that this frugality now offers little to no reward.

“And future pensioners wanting to avoid taking an annual income cut will need to ensure they inflation-link their annuity. Sadly, the majority of people opt for a ‘level’ annuity which means there is no prospect of increasing their retirement income to counter the impact of inflation.

“Last month many people on standard variable rate mortgages had to deal with their mortgage payments rising even though the Bank of England base rate remains static. This month it is the turn of current account holders, many of whom will see overdraft charges rising.

“Today’s news means that there are now only 210 (out of 1,454) standard savings accounts that negate the effects of inflation and the taxman’s cut. The silver lining is that last month there was a choice of only 159 accounts.

“There are 123 ISAs that beat inflation, obviously helped by their tax advantage, though they are limited by the amount that can be invested (£5,640 per annum). By comparison, there are 87 non-ISA accounts that beat inflation, all of which are fixed rate bonds.

“Today’s rate of inflation means hundreds of thousands of savers need an account paying a hefty 3.50% before they earn a real rate of return on their savings. Yet, the average no notice savings account only pays a disappointing 1.05% showing the size of the problem many are facing.”

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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