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Savings pain gets tougher
Inflation figures released today show the Consumer Price Index (CPI) increased during January from 3.7% to 4.00%.
To beat inflation, a basic rate tax payer at 20% needs to find a savings account paying 5.00% pa, while a higher rate tax payer at 40% needs to find an account paying at least 6.67%.
Basic rate taxpayers can choose from just 23 accounts which negate the effects of tax and inflation, including 21 ISA accounts. There are 21 accounts available to higher rate taxpayers all of which are ISAs. There are no accounts available for any taxpayer that beat RPI at 5.1%.
The average savings interest rate payable to a basic rate tax payer, currently 0.83%, is in effect being eroded by 3.34% per year. To highlight just how average savings rates have struggled to keep up with inflation; savers who invested £10,000 in January 2008 would now have the spending power of just £9,325.
Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said:
“The additional hike in CPI largely correlates to the rise in VAT. Whilst this tax on spending does not directly impact on exempt essentials such as food, its indirect effect via higher fuel and distribution costs inevitably drives up all consumables. Those reliant on their savings income will undoubtedly find their level of ‘savings pain’ harder to endure.”
“The rise in inflation will hit those who rely on their savings to supplement their income the most, in particular pensioners.”
“Over the last six months the number of savings accounts that beat inflation for basic rate tax payers has dropped successively from 118 in September to only 23 today, of which 21 are ISAs.”
Cash ISAs limit the amount of investment and therefore return, which is yet a further hindrance when trying to make ends met.”
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.
Think carefully before securing other debts against your home, your home may be repossessed if you do not keep up repayments on your mortgage.
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