Inflation gnaws on savings

The accounts of British savers are under attack from a growing threat – inflation.

And with the Office for National Statistics (ONS) reporting yesterday that the consumer price index (CPI) has risen to four per cent, plus the Bank of England admitting it is likely to go higher still, the problem is getting even worse.

Many savers may not realise what a negative effect this is having on their savings, argues price comparison site MoneyFacts.co.uk.

"The most popular account with savers is a no notice account, where the average rate currently ranges between 3.3 per cent and 4.14 per cent before taxation, depending on the amount invested," explained Michelle Slade, analyst at MoneyFacts.

"In real terms, inflation is not only eroding returns on the investment, it is also depreciating the original capital invested."

The Bank of England today predicted inflation could hit five per cent before the end of the year – causing further damage to British saving's balances.

MoneyFacts finds savers must have at least £25,000 in the bank, and even then in a notice or online account, in order to secure an average gross interest rate higher that 4.4 per cent.

"With inflation predicted to be over five per cent before the end of the year, many savers are going to be adversely effected," continued Ms Slade.

"Savers need to make sure they review their existing arrangement and switch to best buy accounts paying rates higher than inflation."

Savers, then, have little option but to hope the Bank of England will raise the base rate of interest to stop the erosion of the value in their accounts.

Chris O'Toole