The returns enjoyed by savers have been further depleted in real terms by a rise in inflation. The government's official measure of inflation reached 2.9 per cent last month, and is expected to rise further, having a significant impact on the real term return on savings accounts, ISAs and bonds . By increasing the cost of goods and services, high inflation effectively diminishes the value of money dormant in savings accounts. The increase in inflation is largely the result of the government's VAT cut at the start of 2009.
In order to negate the high inflation levels, savers need to be earning at least 3.63 per cent on their money, while a higher rate taxpayer needs to be earning 4.81 per cent. However, this increase in inflation has coincided with poor interest rates from banks, and not one easy access savings account pays a sufficient interest rate to cancel out tax and inflation, with Coventry Building Society offering the closest option with its First Class Postal account which offers interest rates of 3.3 per cent. Meanwhile, just 14 regular savings account pay above 3.63 per cent APR.
Central Bank Blamed as Inflation Cancels Out Savings Interest
Financial Services > e-banking > Banking news
Central Bank Blamed as Inflation Cancels Out Savings Interest
Fri, 22 Jan 2010
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