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