Inflation, a blight on all savers in recent years, rose last month to 3.5 per cent, well above the government’s target of 2 per cent.
This is the first time in six months that the consumer price index, which is the primary measurement of inflation, has gone up. The rise is being blamed on unexpected increases to the price of food and clothing.
Economists have calculated that in order to beat inflation and see an actual return on their money, basic rate tax payers must save in account which pays at a least 4.38 per cent interest annually, while higher rate tax payers will need a minimum of 5.83 per cent.
Data analysts at moneyfacts.co.uk say there are 50 savings accounts on offer in the UK which meet these criteria, the vast majority of which are ISAs, where interest is paid tax free but the amount which can be saved is limited to £5640 a year. The only other accounts offering an inflation beating return are fixed rate bonds, where the money has to be locked up for a minimum of three years, usually with penalties for early withdrawal.
The average interest rate for a UK savings account is a paltry 1.05 per cent, significantly less than what is needed to offset inflation. Moneyfacts spokesperson Sylvia Waycot said: “This shows the size of the problem savers are facing; Inflation is on the rise again and people all over the country must be heaving a huge sigh of frustration.”
Consumers need to stay on top of things if they are going to beat inflation, making sure they have the best deals available and that any returns are maximised is the most effective way to reduce the impact of inflation..