Savings accounts hit by low interest rates and inflation Go compare with our comparison table

Savings accounts hit by low interest rates and inflation

16 December 2009 / by Andy Davies

Low interest rates and rising inflation mean that savers are getting little or no return on their savings, Moneyfacts.co.uk has found.

The latest figures show that inflation has risen to 1.9 per cent in November – its highest level for six months, which according to Moneyfacts.co.uk means that savers need to secure a gross return of at least 2.38 per cent on their savings to break even.

Meanwhile, higher tax payers need to achieve a "near impossible" savings rate of 3.17 per cent.

According to the findings, the real return after basic tax and inflation on an average no notice savings account is minus 1.25 per cent – the lowest return since May this year.

While a review of all savings accounts – excluding ISAs and fixed rate bonds, by Moneynet.co.uk, has revealed that over 86 per cent of variable accounts are paying an interest rate of 2.38 per cent or less.

Commenting, Darren Cook, spokesman for Moneyfacts.co.uk said: "Low bank base rates are designed to encourage savers to plough their savings back into the economy, but this serves little or no benefit to those who rely on interest from their hard earned wealth to subsidise their pension.

"This is extremely unfair for those savers who have made prudent or astute decisions in the past and are being hit by low rates and rising inflation."

Urging savers not to settle for an account offering a "derisory rate of return", Andrew Hagger, spokesman for Moneynet.co.uk, believes savers should look elsewhere.

"To get a real return on the bulk of your savings it’s important to make full use of your ISA allowance and then take advantage of the better rates on offer in the fixed rate bond market," he said.

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