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Savers punished by inflation jump

Savers punished by inflation jump

Category: Savings

Updated: 20/04/2010
First Published: 20/04/2010

MONEYFACTS ARCHIVE
This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.
Savers have seen their pockets hit yet again, after official figures revealed UK inflation increased by more than expected in March to 3.4%.

Rising from 3% in February, the Office for National Statistics said higher petrol prices and the ongoing effect of the VAT rise had both played a part in the increase.

However, the news is another bitter blow to savers who were already struggling to find competitive savings account rates.

Research from Moneyfacts.co.uk suggests a basic rate taxpayer now needs to find a savings account paying at least 4.25% in interest to prevent their savings pot being eroded, of which there are currently just 44 available on the market.

For a higher rate taxpayer, the challenge is to locate a savings account rate of 5.64%, a return only currently available through four accounts.

"The majority of products that do beat tax and inflation also require you to open a more riskier investment product or hold a current account with the provider," said Michelle Slade, spokesperson for Moneyfacts.co.uk.

"Savers are more inclined to invest their money in fixed rate bonds in order to achieve a more competitive rate of return, but to beat tax and inflation you will need to commit funds into a medium term fixed rate bond for at least three years.

"Unfortunately, with base rate likely to rise in the next few years, most savers are looking for a shorter commitment."

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