Rising price of goods is leaving millions of savers with less to spend

NEARLY every saver in Britain is seeing the spending power of their savings eroded, as just one in 30 accounts is keeping up with or beating inflation, analysis shows.

This time last year the interest rate on four out of five savings accounts was at least keeping pace with the cost of consumer goods, meaning the real value of most people’s savings was protected. But a “lethal combination” of interest rate cuts and the cost of every- day items rising over the past year means millions of people’s savings are now declining in value.

Experts said the situation was the worst in six years, with people on fixed incomes and reliant on savings interest facing a major squeeze, which could force them to reduce spending.

Yesterday the Office for National Statistics announced that the Consumer Price Index (CPI) had risen to a twoand-a-half-year high of 1.8 per cent, up from 0.3 per cent this time last year.

It was pushed up by rising food and fuel costs, and experts warned inflation was due to rise further over the course of the year after Britain leaves the EU. Meanwhile, over the same period the number of inflation-matching or beating accounts fell from 662 out of 837 (79 per cent), to 23 out of 697 (3 per cent).

Savings rates have been in decline since 2012 as a result of the Bank of England gradually cutting the Bank rate to a record low last year. However, because inflation fell for much of that period, the blow for savers was softened.

The average instant-access savings account has paid more than inflation since the end of 2014, but now the trend is sharply reversing. The average rate on easy-access accounts is now 0.15 per cent, according to Moneyfacts.

This means if inflation remained at its current 1.8 per cent, savings would lose 1.65 per cent of their spending power in a year. This would see a £20,000 deposit worth less than £17,000 after 10 years.

The only savings accounts that beat the new, higher rate of inflation require savers to lock their money away for a minimum of four years.

Andrew Hagger, a savings expert at MoneyComms, said: “This is the worst it has been since 2011 when inflation was rising at 5.2 per cent and no savings accounts were beating it.”

He added that the “lethal combination of rising inflation and low rates will hit pensioners on fixed incomes hardest”, and that the only way they could ensure a better return would be to risk on the stock market.

Rachel Springall, a finance expert at Moneyfacts, blamed a “lack of rivalry among savings providers”, which has left millions “clearly running out of options for an inflation-beating return”.