| As inflation makes a surprise jump to 5.3%, savings | | | | interest earned on your savings, but when you go |
| accounts fail to offer interest rates higher than the | | | | out and try to spend you money you realise you |
| cost of living. | | | | can't afford what you used to be able to. |
| According to experts, millions of savers in Britain will | | | | "You end up poorer. It is as simple as that." |
| have the value of their investments slashed by the | | | | Standard savings accounts require tax to be paid on |
| inflation, marking the first time that not one savings | | | | the interest earned, which means that in order to |
| account has been able to match the rising cost of | | | | make any real return, you would need to find an |
| living. | | | | account paying a rate of at least 6.63% for basic |
| Out of 1,660 savings accounts available on the UK | | | | rate taxpayers and 8.83% for higher rate taxpayers. |
| savings market, not a single one offers a real rate of | | | | Don't lose more than you need to |
| return of more than 5.3%. This includes the whole | | | | Though no bank or building society can offer an |
| range of savings products, including fixed rate bonds | | | | account that beats inflation, this doesn't mean you |
| and ISAs. | | | | should stop searching for the best savings rates, as |
| The Office for National Statistics said that inflation, as | | | | the lower the rate, the more you will effectively lose. |
| measured by the Retail Prices Index, rose from 4.4% | | | | Black at Defaqto, a research house that specialises in |
| in March to 5.3% last month. The RPI is widely | | | | personal finance, said: "Savers are faring pretty badly, |
| accepted as the most accurate measure of the cost | | | | especially those older people who rely exclusively on |
| of living as it includes housing costs. | | | | their savings. There are lots of accounts paying just |
| Inflation is currently at the highest level recorded | | | | 0.1%." |
| since 1991. | | | | According to figures from the Bank of England, the |
| The jump, which was not expected by most | | | | average savings account pays just 0.18%, while the |
| economists, came after fuel prices soared to record | | | | average cash ISA pays a mere 0.46%. |
| levels, while mobile phone and telephone bills also | | | | Ruth Lea, the economic adviser to the Arbuthnot |
| went up, along with an increase in food, drink and | | | | Banking Group, said: "Savers will be sitting on loses. |
| clothing prices as well as rising mortgage rates. | | | | And what is the small saver expected to do? Put it in |
| Many of the increases came as a result of the tax | | | | shares? Well, that's pretty risky. With capital gains |
| rises announced in Alistair Darling's last budget, | | | | tax on the rise, investments as a whole have taken |
| pushing up the cost of alcohol and vehicle duty. VAT | | | | a turn for the worse in recent weeks." |
| was restored to 17.5% which also increased prices on | | | | Those looking to secure a high rate should consider |
| almost all high street purchases. | | | | fixed rate bonds, as these accounts tend to pay the |
| Ros Altman, a savings and pensions expert and | | | | highest returns. For example, if you're willing to lock |
| former adviser to the government, said: "The | | | | your funds away for 5 years, the Scottish Widows |
| Government keeps on saying high inflation is | | | | fixed rate bond may be the account for you, paying |
| temporary. But anyone with a fixed saving is losing | | | | 4.45%. If 5 years seems like too much of a |
| out. And savers were one of the biggest losers | | | | commitment, the Lloyds fixed rate bond pays 4.10% |
| already from the recession." | | | | on a 3 year term, or the Halifax fixed rate bond |
| Inflation can erode savings as although an investment | | | | paying 3.55%. |
| may increase in value, it might not be able to keep | | | | Alternatively you may wish to take advantage of |
| pace with the increase in prices on the high street. | | | | you tax free savings allowance and opt for an ISA. |
| Ms Altman said: "The effect of inflation is insidious. It | | | | Although you can only invest up to £5,100 into a |
| creeps up on you. You think you are getting more | | | | cash ISA, you can still earn up to 4% tax free when |
| money every year, through wage increases or | | | | fixing the term, so this is definitely worth looking into. |