Inflation still the enemy of savers

15 July 2010

Basic rate taxpayers require savings accounts offering interest rates of 4 per cent if they are to outpace inflation.

Although the rate of inflation as measured by the consumer price index dipped a little last month, down to 3.2 per cent, savers continue to be hit by rises in the cost of living.

Higher rate taxpayers, according to financial website moneynet, need returns of 5.33 per cent on their savings accounts to offset inflation and tax.

Andrew Hagger of moneynet said: "Basic rate taxpayers need to generate 4 per cent just for their savings to tread water, while higher rate taxpayers will find it very hard to find a product paying the 5.33 per cent they need to stand still without signing up for an investment product from the same provider. It is basically unachievable."

Those feeling the pinch the most are people who rely on their savings to supplement their income.

The savings pot of a basic rate taxpayer is shrinking at a rate of 2.62 per cent annually, moneynet calculated.

The average one-year fixed bond rate declined from 2.72 per cent in May to 2.62 per cent in July, while the average five-year fixed bond rate fell from 4.35 per cent to 4.12 per cent over the same period.