To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 3.38% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 4.50%.

Of the 853 ISA and non-ISA accounts in the market today, there are only eight savings accounts that taxpayers can choose to negate the effects of tax and inflation.

The effect of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £8,839 today.

Sylvia Waycot, Editor at Moneyfacts.co.uk, said:

“The fact that this month inflation stuck at 2.7% will not stop the undue distress savers are feeling due to the low returns on savings accounts. They have witnessed the average interest paid on no-notice accounts fall by 0.38% in the last 12 months.

“Bearing in mind that the average no-notice savings account only pays a puny 0.66% interest, savers have no hope of achieving the 3.38% needed just to counter the effects of inflation and pay the taxman’s share.

“Today there are 853 savings accounts on the market but only eight (one fixed bond and seven ISAs) accounts that negate the effects of tax and inflation.

“The average interest paid across the ISA range is just 1.70% and a year ago it was 2.29%.

“Savers have little hope of changing their fortune, as during September just 52 savings accounts raised their rates compared to 87 that reduced them.”

www.moneyfacts.co.uk - The Money Search Engine

Moneyfacts.co.uk is the UK's leading independent provider of personal finance information. For the last 20 years, Moneyfacts' information has been the key driver behind many personal finance decisions, from the Treasury to the high street.

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