Inflation makes it really tough for savers

The latest annual inflation figures of 3.7% for the Retail Prices Index (RPI) and 3.5% for the Consumer Prices Index (CPI) mean that both basic and higher rate taxpayers face a near impossible struggle to get a real rate of return on taxable savings accounts.

David Black, Banking Specialist at Defaqto said: "The stark reality is that there are now no taxable instant access or notice accounts that will give a real rate of return to even a basic rate taxpayer let alone a higher rate taxpayer.

"The average instant access account pays 0.86% gross which equates to a paltry 0.69% for a basic rate taxpayer and only 0.52% for a higher rate taxpayer.

"Savers have to be incredibly proactive to get the best deals and, apart from some Cash ISAs, the only bank and building society savings accounts that give the higher rate taxpayer any chance of a real rate of return are a handful of regular savings and current accounts as well as a few fixed rate bonds that require linked investments in the stock market. The total number of such accounts barely reaches double figures and many of them have conditional additional requirements.

"Those reliant on savings interest to supplement inadequate income will be devastated by this double whammy of rising inflation and low interest rates.

"Even with the tax free Cash ISAs there are only 39 available that pay a real rate of return based on RPI inflation for a £3,600 balance.

National Savings & Investments offer three and five year Index Linked Certificates that are tax free and pay 1% above RPI inflation.