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Further misery for savers as inflation hits 3.7%
Inflation figures released today show the Consumer Price Index increased by 0.4% to 3.7% during December.
To beat inflation, a basic rate tax payer at 20% needs to find a savings account paying 4.63% pa, while a higher rate tax payer at 40% needs to find an account paying at least 6.17%.
Basic rate taxpayers can choose from just 22 accounts which negate the effects of tax and inflation, including 19 ISA accounts. There are 19 accounts available to higher rate taxpayers, all of which are ISAs.
The rise in inflation will hit those who rely on their savings to supplement their income the most, in particular pensioners.
The average savings interest rate payable to a basic rate tax payer, currently 0.83%, is in effect being eroded by 3.06% 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 £9,516.
Louise Holmes, spokesperson for Moneyfacts.co.uk, commented:
“Savers who have been struggling for many months to achieve a competitive return on their funds will be severely disappointed by yet another rise in inflation.
“Basic rate tax payers need to earn 4.63% pa to maintain the purchasing power of their savings, while higher rate tax payers at 40% need to earn 6.17%, attainable on only a handful of products. Over recent weeks some providers have raised easy access rates, but they are still too low to battle the effects of inflation.”
“Typically, cash ISAs and longer term fixed rate bonds tend to offer the best rates for savers trying to beat inflation. However, with interest rates predicted to rise by the end of the year, many investors are reluctant to lock funds away for a long period of time.”
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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