UK Savers Hopes on Hold as Inflation Fails to Fall

By: MoneyFacts

Inflation figures released today show that the Consumer Price Index (CPI) has remained unchanged at 3.10%, still way above the Government’s 2% target.

To stop their savings pot effectively eroding away, a basic rate tax payer needs to find an account paying 3.88%, while a higher rate tax payer needs to find an account offering 5.17%.

Basic rate tax payers have access to 91 accounts, but to access some of the higher returns savers need to open a riskier longer term investment product at the same time.

Savers hardest hit by the rise in inflation are those who rely on their savings to supplement their income, many of whom are pensioners. The average savings pot of a basic rate tax payer is in effect being eroded by 2.48% per year.

Homeowners are again experiencing a zero percent inflation on their mortgage repayments as RPIX, which excludes mortgage interest, remains the same as RPI at 4.7%, which includes mortgage interest.

Darren Cook, spokesperson for Moneyfacts.co.uk, commented:

“Inflation is a stealthy enemy that quietly erodes the spending power of a saver’s hard earned nest egg.

“Banks are being forced to retain more capital within their balance sheets and we know this is pushing up the rates for borrowing customers. There is some hope that an increase in competition for cash will push up rates for savers.

“The average instant access savings rate is still at rock bottom at a rate of only 0.77%. The only trigger for any improvement in savings rates may be a surprise increase in the Bank of England’s Base rate but this is not likely to happen soon.

“To just break even, higher rate tax payers need to find an account paying 5.17%, a level that is nigh on impossible to achieve.

“Only 91 out of a possible 1020 accounts allow a basic rate tax payer to just break even at 3.88%. Fifty-one ISA accounts beat inflation at 3.10%.

“It is difficult for savers to try and beat inflation. At best, they should try to stay within an arms length and try to weather the storm of low rates and high inflation.”

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