Inflation wipes out savings interest

Michelle Slade, analyst at Moneyfacts.co.uk, comments: "A combination of inflation at 5.2% and tax means that savers will now find it near impossible to earn interest on their money.

"A standard rate tax payer needs to find an account paying 6.50%, while a high rate tax payer needs to earn a rate of 8.63%.

"For higher rate tax payers there is no account on the market paying such a rate. Standard rate tax payers only have access to a couple of accounts and then only with restrictions.

"As yet the 0.50% base rate cut has not been passed on by providers. Therefore in the coming weeks, savers are going to struggle even more to find an account.

"Savers had been benefitting from the credit crunch, but now the tables have turned. The Bank of England cut base rate as part of a move to kick start the housing market, but it has come at the expense of savers as inflation jumps to its highest level in six years.

"Until inflation is brought back under control, savers need to make the best of a bad situation. By ensuring that they achieve the best rate possible for their money, they can limit the effect that inflation will have on depleting the value of their money."