Average saver needs to top up savings

More than one-in-three savers need to increase the amount of money they're putting aside each month to take into account inflation, according to research from Abbey Savings.

35 per cent of regular savers have failed to 'up' the amount they put away in the past twelve months to take account for rising inflation - which is now running at 5.2 per cent for CPI, and 5.0 per cent for RPI.

Abbey's Savings found that the average regular saver puts away £194 a month, or £2,328 per annum. In an account paying the same rate of interest as RPI (5.0 per cent), a non-tax paying regular saver would amass a lump sum of £2,391 by year end (£63 gross interest), a basic rate taxpayer £2,378.40 (£50.40 interest) and a higher rate taxpayer £2,365.80 (£37.80 interest).

To maintain their capital in real terms - savers would need to increase the total lump sum by five per cent or £116.4 (£2,328 + five per cent), leaving them a total of £2,444.40 at year end. Non-taxpayers would have to add £53.40, basic rate taxpayers would need to top up £66.00 and higher rate taxpayers £78.60.

Fortunately, just over half of savers (52 per cent) have taken steps to increase the amount they save and amongst those who have increased their regular savings the most popular reason cited was said to be saving for an emergency or rainy day, with 5.6 million people (26 per cent) taking this step.

Reza Attar-Zadeh, Director of Savings and Investments at Abbey: "Inflation has been running well above the target rate of two per cent. While much attention has rightly focussed on savings accounts paying in excess of inflation, this ignores a core point - that savers should increase the amount they are saving to keep pace with inflation.

"Therefore regular savers should review their savings on an ongoing basis - and top up if necessary - to ensure that they are inflation proofing their capital. Equally it is very important to choose strong paying savings accounts. Abbey offers inflation breaking accounts such as our Super ISA paying 7.75% when you invest the same amount or more in an Abbey investment product."