Dwindling savings account rates look set to deal another blow to savers, as inflation rose sharply in December.
Consumer Price Index (CPI) inflation rose to 2.9 per cent last month, spiralling above the two per cent target set by the Government, and a whole percentage higher than the previous month.
According to Moneyfacts.co.uk, in order for basic rate taxpayers to earn a return against inflation of 2.9 per cent they would need to find a savings account paying at least 3.63 per cent, or 4.81 per cent for higher rate taxpayers.
However, there are currently no variable rate savings accounts paying interest above 3.63 per cent.
Commenting, Darren Cook, spokesman for Moneyfacts.co.uk said: "Inflation is starting to make its unwelcome mark on people's spending power and with savings interest rates stuck at their historical low, there is little that savers can do to fight back.
"Pensioners who may rely on their savings pot to subsidise their pension are seeing their savings being eroded on average by 2.30 per cent per year for a basic rate taxpayer and 2.45 per cent for a higher rate taxpayer."
Mr Cook adds: "This is extremely unfair for those savers who have made prudent or astute decisions in the past and are being hit by low savings rates and spiralling inflation."
Commenting on the implications this could have on the base rate, Mr Cook concluded:
"Now that the rate of inflation is well above target, this must surely have an impact on how long bank base rate will stay at 0.5%".
© Fair Investment Company Ltd