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Accounts failing to inflation-proof savings

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by Jan Harris
Accounts failing to inflation-proof savings

Research by comparison site Moneyfacts has found that there is not one single savings account currently available that will completely protect taxpayers’ savings from the effects of tax and inflation.

The latest figures show that inflation fell slightly in November, from 5.0 per cent to 4.8 per cent, on the Consumer Prices Index.

This means that basic rate taxpayers would need to put their savings in an account paying at least 6.00 per cent in order to stop them being eroded by inflation.

A taxpayer paying the higher 40 per cent tax rate, would need to put their savings in an account paying at least 8 per cent in order to inflation-proof their hard-earned cash.

Moneyfacts also highlighted that instant-access savings account pay an average of just 0.93% interest.

Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said: “Over the last year the number of savings accounts that beat inflation for basic rate taxpayers has dropped successively from 57 to absolutely none, which must leave savers wondering why they save at all.”

Bonds tend to offer a better return on savings than instant access accounts, although even these do not negate the effect of inflation and they mean that the investment is tied up for a year or more.

The latest bond from Kent Reliance offers a 3.66 per cent interest rate for savers who don’t mind tying up their money for one year.

However the Limited edition one year fixed rate bond is only for savers with a savings pot of at least £50,000!

If you don’t mind locking your savings away for two-years, the Bank of Ireland, the Halifax and Vanquis bank all offer bonds with interest between 3.85 per cent and 3.9 per cent and there are a number of three year bonds offering over 4 per cent.

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News posted: December 16, 2011

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