Due to a combination of high inflation and low interest rates, savers could see £43 billion of their savings pots eroded by November of next year, according to recent calculations.
The Bank of England’s Monetary Policy Committee convenes this week, where it will decide what it will do with the base rate. While the repayments on mortgages and business loans have been low thanks to the 0.5 per cent base rate remaining unchanged, savings accounts have suffered in the more than 30 months since the MPC set the rate.
According to official figures, the average instant access saver pays out only 0.93 per cent currently. This rate is well below the distressingly high inflation rate, as both the consumer prices index and the retail prices index register inflation as over 5 per cent.
This 0.93 per cent figure only applies to the newest instant access offerings on the market, with a large number of older accounts paying no more than 0.1 per cent in interest.
According to a recent analysis conducted by financial campaigners Save Our Savers, the base rate has been holding down interest rates for savers quite significantly. The campaign group states that the average payout on an instant access saver in November of 2007 was 4.12 per cent, but since banks use the base rate as a guide for their own offerings, rates have since fallen through the floor.
The cash value of savers’ deposits will erode steadily over the next 12 months if the price of fuel, food, and other necessity rises at a faster rate than their savings balances. With MPC officials expected to leave rates at their historic low for the 32nd month in a row, the current inflation rates could see £43 billion worth of the £1.1 trillion deposited in cash savings accounts eroded over the next year.