Inflation eroding savings

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "With latest figures showing that UK inflation has jumped to 4.4%, more than double the Government's 2% target, many consumers may not realise what a negative effect this is having on their savings.

"The most popular account with savers is a no notice account, where the average rate currently ranges between 3.3% and 4.14% before taxation, depending on the amount invested. In real terms, inflation is not only eroding returns on the investment, it is also depreciating the original capital invested.

"Savers can find higher rates on notice accounts and accounts managed online, but even these are not immune from the effects of inflation. It is not until savers in these accounts have at least £25K invested that the average gross rate is higher that 4.4%.

"With inflation predicted to be over 5% before the end of the year, many savers are going to be adversely effected. Savers need to make sure they review their existing arrangement and switch to best buy accounts paying rates higher than inflation.

"In recent months, many institutions have increased rates to tempt savers in order to help their balance sheet, but savers will be wishing that the Monetary Policy Committee decides to increase base rate at the next meeting, to counter the damaging effects inflation is having on the economy."