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

News

Moneyfacts.co.uk News brings you the latest financial & economic news & reviews of the best products in the UK by our team of money experts.

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 It is now over 6 months old so the content may be out of date.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

Find the best savings rates for you - Compare savings accounts


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.

Related Articles

Just 44 savings accounts beat inflation

Inflation recorded another large jump during December, and predictably, this has had a devastating impact on the number of savings accounts that beat it, so much so that you’ll need to lock your money away if you want an inflation-beating return.

Just 47% have money in a savings account

We’re often told of the importance of saving, yet unfortunately, the message doesn’t always get through. Indeed, research shows that just 47% of those surveyed have money in a savings account, and 17% have no savings or investment whatsoever.

How much will you save this year?

Many of us have set savings goals for the year ahead, and planning to budget better and save more will be at the top of many financial resolution lists. But how much are you hoping to squirrel away? Encouragingly, many people have impressive targets.
 
Close