An unexpected rise in inflation is set to further punish savers, who are already struggling to get a good deal on their investments.
Figures released today by the Office for National Statistics show that the Consumer Price Index (CPI), the government's inflation target measure, jumped to 3.4%, as higher-priced petrol, gas bills and plane tickets contributed to a rise in the cost of living.
According to Moneyfacts.co.uk the increase in inflation means that savers could see their savings pots effectively eroding away because accounts offering interest rates high enough to offset the effects of a inflation do not currently exist.
Figures show that in order to combat the rise a basic rate tax payer must find an account paying 4.25%, and a higher rate tax needs an account paying 5.64% in interest just to break even, let alone see a return on their savings.
Michelle Slade, spokesperson for Moneyfacts.co.uk said: "Prudent savers continue to be neglected and are finding it virtually impossible to combat the effects of tax and inflation. The majority of products that do beat tax and inflation also require you to open a more riskier investment product or hold a current account with the provider.
"Many savers, particularly pensioners, use the interest on their savings to supplement their income. Record low interest rates have already greatly reduced the income they receive on their money and rising inflation just exacerbates the problem.
"In normal circumstances such a high level of inflation would likely see the Bank of England raise base rate, but these are not normal economic conditions. For savers a rise in bank rate can't come soon enough."
In order to counter-act the inflation rise savers should think about switching to accounts with higher interest rates. At the moment basic rate tax payers have a choice of 44 accounts that offer rates enabling them to break even, while only 4 accounts are available to higher rate tax payers.
The good news is for those investing in a tax free Isa wrapper, a rate in excess of 3.4% is needed to see a return and there are four cash Isas available that meet this.
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