With rising energy and food prices driving the rate of inflation creeping above 5 per cent, savers looking for interest rates that won’t get eroded by the high cost of living are being hung out to dry.
During the month of September, the country’s inflation rates rose to 5.2 per cent, up from 4.5 per cent, spelling disaster for anyone looking for savings accounts with rates of return that wouldn’t immediately get consumed by high inflation. The retail prices index hit a new two decade high of 5.6 per cent, while the more conservatively measured consumer price index exceeded industry analyst expectations, rising above 5 per cent.
Over the past few years, the Monetary Policy Committee has been attempting to manage the country’s inflation rate be either lowering or raising the base rate in an effort to discourage or encourage spending. However, the committee, which is a division of the Bank of England, has elected to maintain the base rate at its historic 0.5 per cent low for nearly three years straight due to the weak economic outlook.
Those looking for personal or business bank accounts with high rates of return find little solace in this fact, as low saving rates collide with high inflation and effectively making their deposits worth less at the end of the year than it was at the beginning. Those paying tax at the basic rate of 20 per cent would need to find an investment paying anywhere from 6.5 per cent to 7 per cent in order to turn a profit, and those paying the higher rate would need to find an 8.7 per cent return to avoid a net loss.
Savings options that can offset high inflation are few and far between. However, there are some higher risk investment plans that could bear fruit for the intrepid saver, while longer-term ISAs are another option, since these savings products are tax-free.