Record increase in UK inflation described as a blow for savers |
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| News - Savings | |||
| Written by Ray Clancy | |||
| Wednesday, 20 January 2010 09:47 | |||
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Basic rate tax payers will now need an account paying at least 3.63% to gain benefit in real terms from their savings, increasing to 4.84% for higher rate tax payers, according to research by experts at moneysupermarket.com. Of the 261 easy access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax. The best paying easy access account is the Coventry Building Society First Class Postal account paying 3.3%, the money comparison site says. Regular savers only fair slightly better with 14 of the 42 regular savings accounts paying interest higher than 3.63% for basic rate tax payers but higher rate tax payers have little choice with only two accounts paying higher than 4.84%. Anyone looking for a mini-cash easy access ISA should be aware that only two ISAs currently pay above 2.9%, which is the rate needed for a return, it also points out. ‘The inflation announcement is a real blow to savers who are finding it extremely hard to find a suitable place for their hard earned cash. When looking to choose a suitable savings product it is easy to forget the impact inflation can have, so it’s vital savers keep a close eye on how their account stacks up,’ said Kevin Mountford, head of banking at moneysupermarket.com. ‘Inflation was dwindling for much of last year but today’s numbers show it’s very much back on the agenda and savers really have to be proactive to find the right deal. Given the low number of products which offer a return above inflation, savers really need to keep a close eye on the interest rate, especially on fixed-term accounts whose rate may come crashing down after the term ends,’ he added. The one piece of good news is that many economists now think interest rates in the UK will rise sooner rather than later. ‘Yesterdays record increase in inflation should mean a rise in base rates this year becomes much more likely which will be better news for savers,’ concluded Mountford. Meanwhile research from Investec Private Bank shows that banks and building societies are increasingly using bonuses to inflate the headline rate on their savings accounts to attract deposits. It says that the average bonus paid by banks and building societies for balances of £25,000 or more has increased by 0.29% to 1.82% over the last quarter compared to the previous quarter. Its index also shows that the number of banks and buildings societies paying bonuses on savings deposits for balances of £25,000 or more has increased to 190, 21% of all accounts, and is the highest number since 31 October 2005. At the same time, the average term of these bonuses has fallen from around 11 ¼ months between 1 August and 31 October 2009 to 10 ¾ months between 1 May and 31 July 2009. ‘During this low base rate environment, it seems that many banks and building societies are using short term bonuses in a bid to attract saving deposits. While it shows that there are some decent rates around, savers should be aware of the size and length of these offers and be prepared to switch to accounts paying consistently attractive rates of interest over the longer term,’ said Linda McBain, head of Banking, Investec Private Bank. ‘For instance, the Investec High 5 Account does not rely on bonuses to offer attractive returns and aims to provide its clients with some of the most consistently competitive and transparent rates in the savings market. It is currently paying 3.32% gross AER, 2.82% above the Bank of England base rate,’ she added. Add this page to your favorite Social Bookmarking websites          
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