Savers seem to be caught between a rock and a hard place in the current economy, with interest rates so low that inflation is eroding the returns of their savings accounts.
The nation’s inflation rate, a measure of how much the cost of living expenses has risen in the past 12 months, was found to have dropped by 0.2 per cent recently. However, this is still more than twice the 2 per cent target rate set by the Government, which means that savers need to find high interest savings accounts that offer at least 6.25 per cent before taxes or risk eroding the value of their savings pots, while those Brits paying the higher rate need to find a massive 8.33 per cent interest rate if they want to break even.
There is currently no offering on the market that can match such high rates. This differs radically from last year, where there were more than 90 inflation-beating deals out there for savvy savers.
Inflation has eroded £800 worth of spending power from a typical deposit of £10,000 since 2006. Those who rely on fixed incomes from interest rates have been hit particularly hard by the rising inflation rate, as have pensioners.
Savers were warned recently that they risk losing £43 billion in total over the coming two years if inflation does not drop below the 5 per cent level. Meanwhile, the Bank of England’s Monetary Policy Committee has stubbornly refused to alter the 0.5 per cent base rate, as it fears this could set economic recovery efforts back.
One personal and business bank account expert commented on the conundrum, stating that people have no way of knowing which way they should turn with inflation so unsteady and returns so low. Yes, savers can select inflation-linked accounts, which will offer them some measure of protection if inflation continues to rise, but will end up returning much less if the cost of living drops significantly.