Inflation and low interest rates to cost savers £1.5bn in one year

UK savers are set to lose £1.5billion this year as soaring inflation erodes the value of their nest eggs.

Families are hiding away more than £60billion in cash for long-term savings and investments, according to research from investment company BlackRock.

But with interest rates at record lows and inflation at a four-year high of 2.9 per cent, the value of rainy-day funds is being silently diminished.

‘It is a disaster, effectively a whole generation has been punished for saving their money,’ said former pensions minister Ros Altmann. ‘When people think “If I save now then it will be worth less in a year so I might as well keep spending” they start to lose their vital safety cushion.’

BlackRock found that more than £600million has been eroded from UK savings so far this year, with another £880million set to be lost if inflation continues at the yearly average of 2.4 per cent. But with inflation making a shock leap to 2.9 per cent last month, the savings black hole could become even worse. On average, UK savers typically have £8,700 in cash, with an average of £2,270 set aside

‘Spending power has disappeared’

for the future. They stand to lose £55 of this future savings pot this year, and around £860 in total over the next 20 years if high rates of inflation continue.

Steve Webb, another former pensions minister who is now head of policy at investment firm Royal London, calls inflation a ‘hidden killer’ of savings.

‘The way inflation eats into your statement is invisible,’ he said. ‘For example, £10,000 invested in an account may still say £10,000 one year on, but if average prices have shot up due to inflation, then a chunk of spending power has disappeared.’

Jeremy Roberts, head of UK retail sales at BlackRock, said it is time for savers to step out of cash and put their money into investments which will beat inflation. ‘Resigning all our money to cash is not the answer,’ he said.

Wednesday marked the ten-year anniversary of the last interest rate rise in the UK. According to investment firm Hargreaves Lansdown, £1,000 held in cash in the bank over that period is now worth just £878 after accounting for inflation. This compares to £1,323 from £1,000 invested in the stock market.