Savers in Britain are still struggling to find accounts that beat the rise in the cost of living, despite
inflation falling in March. Even though inflation fell from 4.4 per cent to 4 per cent, one in ten
consumers has stopped saving in 2011 and those that continue have little or no chance of benefiting
from an inflation busting return.
Limited number of inflation busting accounts on the market
The Guardian reports that ‘the effect of inflation on savings means that £10,000 invested five years
ago, allowing for average interest, inflation and tax at 20 per cent, would be worth just £9,587
today.’
Taking into account the new Consumer Prices Index figure of 4 per cent, basic rate taxpayers
now need to find an account paying 5.01 per cent interest in order to beat inflation. Higher rate
taxpayers need an account paying 6.67 per cent whilst 50 per cent taxpayers need a return on their
savings of 8.01 per cent.
The newspaper reports that ‘there are no instant access accounts that will match or beat inflation
plus tax at the basic rate.’ There are no accounts of any type that will allow higher rate taxpayers to
keep pace with rises in the cost of living.
Savers limited to ISAs and bonds
Savers looking for an inflation beating rate are further restricted as 24 of the 25 accounts available
are fixed rate ISAs. With ISAs having subscription limits it means that savers are limited to the
returns they can generate at the highest interest rates.
Andrew Hagger of Moneynet.co.uk said that to get a 5 per cent return, savers need to tie their
cash up in a fixed-rate bond for five years. “Both AA Savings and Principality building society offer
5 per cent for five years, but they are the only two bonds that do,” he said. “It remains a very
tough environment for savers still battling against the crippling combination of low rates and high
inflationary pressures.”
