Inflation increase shock for savers

Posted on: 20 January 2010 by Gareth Hargreaves

Today’s announcement by the Bank of England on the biggest increase in inflation since records began spells bad news for savers with only a handful of savings products now paying high enough interest to offset the effects of inflation., the UK’s largest comparison website, is urging savers to protect their hard-earned cash by checking the rates offered on their account to ensure their savings pot is not eaten away by inflation.

Basic rate tax payers will now need an account paying at least 3.63 per cent to gain benefit in real terms from their savings, increasing to 4.84 per cent for higher rate tax payers, yet research by experts at shows this is no easy feat.

Poor interest returns

Of the 261 easy access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax. The best paying easy access account is the Coventry Building Society First Class Postal account paying 3.3 per cent.

Regular savers only fair slightly better with 14 of the 42 regular savings accounts paying interest higher than 3.63 for basic rate tax payers but higher rate tax payers have little choice with only two accounts paying higher than 4.84 per cent.

Anyone looking for a mini-cash easy access ISA should be aware that only two ISAs currently pay above 2.9 per cent, which is the rate needed for a return.

Suitable savings products

Kevin Mountford, head of banking at, said: "The inflation announcement is a real blow to savers who are finding it extremely hard to find a suitable place for their hard earned cash. When looking to choose a suitable savings product it is easy to forget the impact inflation can have, so it’s vital savers keep a close eye on how their account stacks up. Inflation was dwindling for much of last year but today’s numbers show it’s very much back on the agenda and savers really have to be proactive to find the right deal.

“Given the low number of products which offer a return above inflation, savers really need to keep a close eye on the interest rate, especially on fixed-term accounts whose rate may come crashing down after the term ends. There are things you can do to limit the impact on savings. It’s a no-brainer to utilise your tax free ISA allowance this year and next when the amount you can squirrel away in cash increases to £5,100.

"The potential good news from this announcement today is that banks and building societies will have to react accordingly so we could see savings rates increase in the near future. Today’s record increase should mean a rise in base rates this year becomes much more likely which will be better news for savers.”


Regular saver accounts

Provider Account
terms and conditions apply
Deposit AER
Norwich & Peterborough BS Family Regular Saver Account £1 5.00%
Chorley & District BS Santa Saver Account £1 5.00%
Principality BS Regular Saver Bond £20 4.50%
Stroud & Swinton BS Regular Saver Plus £10 4.50%
Barclays Bank Monthly Savings Account £20 4.25%


Sourced by 19/01/10

Top cash ISAs

Provider Product Minimum Investment AER
Terms &conditions apply
Standard Life Cash Savings Direct Access ISA £1 2.65%
Barclays Golden ISA £1 2.58%
Intelligent Finance Cash ISA £1 2.50%
first direct cash e-ISA £1 2.50%
ING Direct Cash ISA £1 2.50%


Sourced by 19/01/10


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