Savings pain intensifies as inflation rises again - Savings - News - Moneyfacts

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Savings pain intensifies as inflation rises again

Savings pain intensifies as inflation rises again

Category: Savings

Updated: 15/02/2011
First Published: 15/02/2011

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 It is now over 6 months old so the content may be out of date.

Already hard-pressed savers have been dealt a further blow after official figures revealed inflation increased yet again in January.

According to the Office for National Statistics, Consumer Prices Index (CPI) inflation leapt to 4.0% last month, up from 3.7% in December, thanks largely to the rise in VAT.

Retail Prices Index (RPI) inflation, which takes into account the cost of housing including mortgage interest payments, increased to 5.1%, the second highest rate since July 1991.

Following the announcement, Moneyfacts.co.uk said that in order to maintain the purchasing power of their savings, a basic rate tax payer needs to find a savings account paying 5.00% pa.

These savers have a choice of just 23 savings accounts that will negate the impact of tax and inflation, including 21 ISA accounts.

Juts six months ago, in September 2010, 118 savings accounts would have been up to the task.

Meanwhile, a higher rate tax payer at 40% has the unenviable task of finding an account with a return of at least 6.67% pa.

Only 21 accounts are available to these savers, all of which are ISAs.

Not one savings account is currently available which will beat RPI.

Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said the recent rise in VAT was largely to blame for intensifying savers' pain.

"The additional hike in CPI largely correlates to the rise in VAT.

"Whilst this tax on spending does not directly impact on exempt essentials such as food, its indirect effect via higher fuel and distribution costs inevitably drives up all consumables.

"Those reliant on their savings income will undoubtedly find their level of 'savings pain' harder to endure."

Amongst those hardest hit by the latest inflation rise will be pensioners, many of whom rely on their savings to supplement their income.

The rise also cranks up the pressure on the Bank of England to raise interest rates in an attempt to bring inflation back under control.

It now stands at double the Bank's 2.0% target rate.

Last week, the Bank kept rates at their historic low of 0.5% for the 23rd month in a row.

Policymakers are reluctant to sanction an interest rate rise for fear it might damage the economic recovery.

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Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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