Inflation and tax ravage already meagre returns for savers

The latest inflation (Consumer Price Inflation) figure announced today gives an annual inflation rate of 3.1%.

Analysis of current savings rates by Defaqto shows that, even at this lower inflation rate, very few savings accounts are able to give a real rate of return to taxpayers.

David Black, Principal Consultant for Banking at Defaqto, said "The dramatic falls in the bank base rate has meant that savers are facing really bleak times and many taxpayers now have few opportunities to obtain a real rate of return after inflation and tax are taken into account."

"A higher rate taxpayer now requires a gross return of 5.17% just to keep pace with inflation whereas a basic rate taxpayer requires 3.88%. With the vast majority of accounts this level of return is very difficult to find for higher rate taxpayers and savers really have to be on their toes to access the best rates."

There are various things that savers can do to improve their returns and these include:-

If you've had the same variable rate savings account for a while look around to see if you can get a better deal elsewhere;

Use your cash ISA allowance;

If you're contemplating locking your savings into a fixed rate bond only do so with savings that you are certain that you will not need during the fixed rate term.

Take advantage of accounts offering introductory bonuses but diarise when the bonus ends so that, terms permitting, you can then move to another account;

Make sure that you understand and are happy with the terms of the account as there is an increasing tendency for headline rate accounts to limit or penalise withdrawals;

There are still a number of regular monthly savings accounts paying high rates but these generally limit monthly deposits to no more than £250 and many are conditional in that they require you to have another account with them;

Think about switching your current account to a better deal;

If you always repay your credit card balance in full every month think about using a cash back credit card;

If you're a higher rate taxpayer with a mortgage and a reasonable level of savings have a look at offset mortgages.