25 Apr 2024

No end to savers’ distress

Inflation figures released today show the Consumer Prices Index (CPI) in January stuck at 2.7%.

To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 3.37% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 4.50%.

Although there are 874 standard savings accounts in the market, not a single non-ISA account negates the impact of tax and inflation regardless of your tax position. Even with the tax advantage, there are only 5 ISAs that beat 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 £9,022 today.

Rachel Springall, finance expert for Moneyfacts.co.uk, said:

“After inflation sticks for a consecutive month, savers still have little to hope for.

“Savings rates are continuing to fall, so investors face a real struggle to generate any sort of real return.

“Those in retirement in particular rely on their savings as an additional stream of income to supplement their pension, so this will be a real blow.

“Looking back a year ago when CPI was 3.6%, there were 33 ISAs on the market that beat inflation, compared with just five today, which shows the scale of damage the Funding for Lending Scheme has had on savings rates.

“This time last year you could get a rate of 3.10% on an easy access account. If you were looking for a similar return today, you would have to tie your money down for five years.

“Settling for a fixed bond today will give you a much lower return of interest compared to this time last year, when you could get 4% over a two-year deal, compared to under 3% today.

Today, the average easy access account pays 0.82%; this time last year the average paid on easy access accounts was 0.92%.

“Best buy deals on savings are still being pulled from the market, which is likely to continue until the market smoothes out. Savers need to act fast to take up the best rates.”

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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