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Inflation headache gets worse for savers

Inflation headache gets worse for savers

Category: Economy

Updated: 16/08/2011
First Published: 16/08/2011

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

The inflation headache for savers got worse this morning, as figures show that the Consumer Prices Index has risen from 4.2% to 4.4%.

To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 5.50% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 7.33%.

Basic rate taxpayers can choose from eight accounts that negate the effects of tax and inflation, all of which are fixed-rate ISAs.

Disappointingly, there are just three accounts available that beat the Retail Prices Index at 5.00% - all of which require savers to open another investment product to qualify.

The effect of inflation on savings means that £10,000 invested five years ago allowing for average interest and tax at 20% would have the spending power of just £9,374 today.

"The latest rise in CPI will continue to antagonise savers, leaving them very few options to negate the effects of tax and inflation," said Michelle Slade, spokesperson for

"At today's rate of inflation a basic rate taxpayer will need to find an account paying 5.50%, while a higher rate taxpayer needs 7.33% to achieve a real return on their savings.

"Anything less means the spending power of their capital is being eroded. Already £626 has been wiped off the spending power of £10,000 in just five years.

"Savers who rely on the interest from their savings to supplement their income, many of which are pensioners, will be hit the hardest.

"This time last year basic rate taxpayers had a choice of 91 accounts to negate the effects of inflation, today there are just eight and all are fixed-rate cash ISAs."

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