More misery for savers as inflation bites

Today's announcement by the Bank of England that inflation figure has hit 3.7 per cent spells further misery for savers with only a handful of savings products now paying high enough interest to offset the effects of inflation.

2010 has so far proved disastrous for savers, with increasing inflation and the average rate of the top five savings accounts plummeting to just 2.86 per cent from 3.04 per cent at the turn of the New Year.

moneysupermarket.com, the UK's largest comparison website, is urging savers to protect their hard-earned cash by checking the rates offered on their account to ensure their savings pot is not eaten away by inflation.

Basic rate tax payers will now need an account paying at least 4.62 per cent to gain benefit in real terms from their savings, increasing to 6.17 per cent for higher rate tax payers, yet research by experts at moneysupermarket.com shows this is no easy feat.

Of the 262 Easy Access savings accounts for balances of £1,000 not a single one pays enough interest to negate the combined effects of inflation and tax.  The best paying easy access account is Coventry Building Society's 1st Class Postal account paying 3.15 per cent.

Regular savers only fair slightly better with 3 of the 57 regular savings accounts paying interest higher than 4.62 for basic rate tax payers there are no accounts paying higher than 6.17 per cent.

Kevin Mountford, head of banking at moneysupermarket.com, said: "The latest inflation news is a bitter blow for savers. There is a danger that many will do nothing because of the belief that there is little point, but this is not the time to be apathetic. Yes, it's getting harder to earn a positive return on your savings, but rather than sitting back and doing nothing, it is more important than ever for savers to proactively seek the best returns possible on their money."

"Given the low number of products which offer a return above inflation, savers really need to keep a close eye on the interest rate, especially on fixed-term accounts whose rate may come crashing down after the term ends. There are things you can do to limit the impact on savings. It's a no-brainer to utilise your tax free ISA allowance this year and next when the amount you can squirrel away in cash increases to £5,100. Although moneysupermarket.com research shows that four out of ten consumers won't be utilising their ISA allowance this year, so they are really missing out.

"Unfortunately we have yet to see any movement from banks in reaction to last month's inflation announcement. We have actually seen a fall in savings rates since the start of the year so I hope we will start to see a change upwards so savers don't lose out even more.