Inflation proof your savings

The cost of living crisis gripping the UK means taxpayers earning less than 5.4 per cent on their taxable savings are losing money.

Research by price comparison site moneysupermarket.com shows there are 487 savings and current accounts on offer paying less than 5.4 per cent, meaning more and more people are falling further behind financially.

Kevin Mountford, head of savings at moneysupermarket.com, said: "With the Government struggling to control the cost of living, it needs to start seriously thinking about abolishing the tax on savings.

"With the retail price index at 4.3 per cent, a standard rate taxpayer needs to be getting 5.4 per cent on their taxable savings to break even."

Even tax-free accounts are finding it tough to keep pace with inflation, with 44 ISA accounts paying less than 4.3 per cent.

Kevin Mountford added: "National Savings & Investments recently increased its savings rates by up to 0.75 per cent but, on the whole, this still didn't cut the mustard for savers.

"NS&I's index-linked three and five-year savings certificates pay a tax free amount of the RPI plus one per cent, but its other accounts really struggle. Its Guaranteed Income Bonds, for example, only pay 3.72 per cent after standard tax is taken out.

"Savers, especially those paying the higher rate of tax, should make sure they take full advantage of their annual £3,600 ISA allowance if they want to inflation proof their finances.

"People who are lucky enough to have some money left over at the end of each month should consider the Alliance & Leicester or Halifax regular savers, which pay 12 and 10 per cent respectively."