Savers losing 2pc a year to rising prices
SAVERS are having their nest-eggs savaged by the soaring rate of inflation.
Even if your cash is sitting in the best easy-access Isa, it is depreciating by nearly 2 pc a year, Money Mai l research shows.
The top easy-access cash Isa, Virgin Money Defined Access Isa, pays 1.06 pc. But inflation rose to 2.9 pc in August, pushed up from 2.6 pc the previous month by higher fuel costs and the price of clothes. So savers are seeing their money eaten away at a huge rate of 1.84 pc a year (1.06 pc less 2.9 pc).
The effect is to turn each £10,000 into £9,981.60 over 12 months even after interest has been added.
On easy-access savings, the top rate is 1.25 pc from Ulster Bank. That means your money is devaluing at a rate of 1.65 pc.
In the High Street, it is even worse. The top easy-access account with no restrictions on how many times you make a withdrawal is 1 pc from Kent Reliance — leaving you a higher 1.9 pc out of pocket.
A year ago, you might not have earned much interest on your savings, but at least the value of your money would not have been eaten away by rising prices.
Today, there is not one savings account that can match or beat inflation, according to research by data analysts Moneyfacts. The best one-year fixed deal pays a below-inflation 1.83 pc from Wyelands Bank. The top two-year bond is 2.05 pc from Paragon and Atom banks.
And, again, if you stick to the High Street fixed-rate bonds, they are even worse value. The top one-year deal is 1.5 pc from Metro Bank or 1.3 pc from Virgin Money. Big players pay even less. Halifax pays a paltry 0.45 pc fixed for one year and Lloyds just 0.35 pc.
Even if you tie your money up for five years — which experts warn against — the best deal is a belowinflation 2.4 pc from Close Brothers Savings.
This time last year, inflation was running at a much lower 0.6 pc. Then you could earn 1.2 pc in an easy- access account, double the rise in the cost of living.
On fixed-rate bonds, the rate was as high at 2 pc for one year and 2.2 pc for two years, giving you a real return of 1.4 pc or 1.6 pc even after inflation was taken into account.
The sudden turnaround followed the cut in base rate to 0.25 pc in August last year, where it has been frozen ever since. Providers cut their rates against a background of rising prices on goods and services.
Savers’ rates have edged up recently from their lows following the cut in base rate, but not nearly enough to help savers keep their money growing at the same pace as the cost of living.
Experts now predict inflation will rocket to more than 3 pc before starting to fall. It is putting pressure on the Bank of England to raise interest rates. But the Bank’s governor, Mark Carney, says the hikes must be gradual to protect mortgage borrowers from defaulting.
The only way savers can beat the new 2.9 pc inflation rate is by using a current account that pays interest. But the amount you can protect is very limited.
Nationwide FlexDirect pays 5 pc on the first £ 2,500 in your account, but only for the first year.
Tesco Current Account pays 3 pc on up to £3,000, while TSB Classic Plus gives 3 pc on a maximum £1,500.