The banks that shrink your money
99% of savings accounts fail to keep up with rising inflation
NEARLY every savings account is failing to pay enough interest to beat inflation, shocking figures revealed last night.
Inflation is at its highest rate in six months, hitting 2.7 per cent in August – but 99 per cent of accounts pay less.
This means prudent families who put money away are getting poorer every year.
The average easy-access savings account pays a measly 0.6 per cent.
Across the whole savings market, which also includes hundreds of bonds and Isas, only four accounts actually match or beat inflation.
Even an interest rate rise by the Bank of England has made little difference to savers after a decade of woe, with big banks refusing to pass on the increase in full to most customers.
The rock-bottom interest rates on offer have raised concerns that Britain’s savings culture is dying as people turn to credit cards to support day-to-day spending.
Inflation as measured by the consumer price index rose to 2.7 per cent last month – up from 2.5 per cent in July.
The increase surprised economists, who had been expecting a fall to 2.4 per cent.
The alternative retail price index measure of inflation, which is used to calculate increases in many pensions, rose to 3.5 per cent in August.
Wages are climbing faster than shop prices, with salaries rising at 2.9 per cent, meaning living standards are improving.
But jumps in prices still worry campaigners who fear Britain is living beyond its means.
The research group Moneyfacts said the four savings accounts offering high enough returns to protect families’ nest eggs from being eroded by inflation were the Islamic bank BLME, which pays a 2.75 per cent anticipated profit rate on a bond that requires savers to lock their money up for seven years, PCF Bank’s seven-year bond paying 2.75 per cent inter- est, and five-year BLME and Charter Savings Bank bonds with returns of 2.7 per cent.
Rachel Springall, of Moneyfacts, said: ‘It is going to be a struggle to find a savings account that provides an inflation-beating return without locking money away for the longer term.
‘ If savers have cash in an account paying a poor return, they should switch.’ Justin
‘It has been a hammer blow’
Modray, of the consumer group Candid Money, added: ‘The very painful combination of low interest rates and rising inflation has been a hammer blow.’
In July, the Office for National Statistics said households were spending more than they earned for the first time in 30 years.
However, the five top banks on the London Stock Exchange – Barclays, HSBC, Lloyds, RBS and Standard Chartered – made profits of £9.3billion in the second quarter of 2018, their best three-month showing in more than five years.
But not a single major High Street bank is passing on the full benefit of last month’s 0.25 per cent increase to the base rate to all savings customers.
A spokesman for UK Finance, the banking trade body, said: ‘Borrowers are benefitting from historically low rates. While customers have seen lower returns on savings, banks have made it easier to shop around to get the best deal.’
WITH our ageing population and a worsening social care crisis, nothing is more vital to our society than workers being encouraged to save for old age.
This is why it is so profoundly disturbing that today 99 per cent of savings accounts pay less interest than the rate of inflation – which rose to an annual 2.7 per cent last month, while the average easy access account pays a mere 0.6 per cent.
Where is the incentive to save, when prudent families see nest eggs eaten away by rising prices? After a decade of miserable returns, no wonder so many prefer borrowing to saving – thus storing up yet more trouble for the economy’s future.
True, rapacious banks are partly to blame for shrinking savers’ money by refusing to pass on the full benefits of the Bank of England’s increase in interest rates.
But with households spending more than they earn for the first time in 30 years, responsibility also lies with ministers, who have signally failed to breathe life into our dying savings culture. Indeed, Chancellor Philip Hammond is even said to be considering a new tax raid on pensions, which can only make the problem worse.
When he came to power eight years ago, David Cameron (remember him?) pledged that the Conservatives would stand by those who ‘do the right thing’.
Theresa May must make it a priority to match action to his words.