UK Savers Continue to be Punished by High Inflation

By: MoneyFacts

Inflation figures out today show a rise in Consumer Price Index to 3.20%.

To maintain the purchasing power of their savings, a basic rate tax payer needs to find a savings account paying 4.00 % pa, while a higher rate tax payer at 40% needs to find an account paying 5.33%.

Basic rate tax payers have a choice of 31 accounts allowing for tax, that negate the impact of inflation, while only two accounts are available to 40% band tax payers.

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 interest payable to a basic rate tax payer is in effect being eroded by 2.57% per year.

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

“That stealthy enemy called inflation is quietly but aggressively eroding away the spending power of a saver’s hard earned nest egg.

“The average instant access savings rate is still at rock bottom at a rate of only 0.79%. 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 despite the increase in the rate of inflation.

“To just break even, higher rate tax payers need to find an account paying 5.33%, a level that is nigh on impossible to achieve.

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

“It is likely that the New Year may bring further bad news for savers as the increase in VAT is likely to add to the inflationary headache.”

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