Do you rely on your savings for income?
Those Brits who need their savings to supplement their income are being hit hard by rising inflation. That’s the view of financial data company Moneyfacts who found that it is almost impossible to find an inflation busting savings interest rate in the UK. This is after the UK’s headline inflation rate rose to 4 per cent this week; twice the Government’s target.
Savings failing to keep pace with inflation
The BBC reports that ‘to overcome inflation, a basic rate taxpayer needed to find a savings account paying 5 per cent a year’. However, Moneyfacts found that the average savings rate being paid to this group was just 0.83 per cent.
If you pay the 40 per cent tax rate then to beat inflation you need an account paying 6.67 per cent, and this rate is only available from 21 Individual Savings Accounts (ISAs).
In addition, most of the accounts that match or beat inflation require savers to lock up their money for four or five years. The remainder require savers to also invest money in equities.
Inflation eroding savings returns
The UK Consumer Prices Index (CPI) annual inflation rate, which charts the cost of living, rose from 3.7 per cent in December to 4 per cent in January. Retail Prices Index (RPI) inflation – which includes mortgage interest payments – rose from 4.8 per cent to 5.1 per cent.
Moneyfacts found that no savings accounts were available that pay rates which overcome the RPI, while there were 23 accounts for basic rate taxpayers that beat CPI – of which 21 were ISAs.
Sylvia Waycot of Moneyfacts said: “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.”
