The runaway inflation rate in the UK has sent savers scrambling for high interest rate savings products – or face the erosion of their hard-earned cash.
The Consumer Prices Index jumped 4 tenths of a percentage point last December to 3.7 per cent. This means that savers must find savings accounts with at least 4.63 per cent in interest before the basic tax rate in order to actually grow their money.
Such high interest savings accounts are thin on the ground, however. The only available such savings products tend to be fixed-rate bonds with extremely long terms, such as the five-year fix from Coventry Building Society, which boasts a 4.75 per cent return.
Taxpayers in the UK who pay the higher rate of income tax are in even bigger trouble. In order to see their money grow at the same rate as the CPI, these higher-rate taxpayers need a savings product that provides them with at least 6.17 per cent interest.
Industry experts have been advising worried savers not to lock their cash up for longer than a 12 month period. This has led several savers to think twice about signing up for Coventry’s 4.75 per cent fix due to its long term. Those in long-term fixes will be certain to lose out when interest rates finally begin to head upwards once more, experts warn.
Furthermore top-rate taxpayers have been sorely tempted into higher risk commodity and stark market funds to increase returns as no ordinary savings accounts are paying above the 5 per cent mark. However the pressure to end the year with more than 6 per cent in returns to avoid a loss on their investment can take its toll.