Savers still out in the cold despite inflation falling in February

With the Bank of England announcing that CPI fell in February, savers might be thinking that there are green shoots of recovery on the horizon, but analysis from the UK's number one comparison site, moneysupermarket.com shows that no easy access savings account currently pays enough interest to offset the effects of inflation and taxation.

With CPI falling to three per cent, basic rate tax payers with savings only, will now need an account paying at least 3.76 per cent to gain benefit in real terms from their cash, increasing to 5.01 per cent for higher rate tax payers (6.01 per cent for those higher rate tax payers paying 50 per cent tax from 6 April).

For those saving and borrowing, with RPI remaining constant at 3.7 per cent, basic rate tax payers would need an account paying at least 4.63 per cent, increasing to 6.17 per cent for higher rate tax payers.

Kevin Mountford, head of banking at moneysupermarket.com, said: "Despite a fall in CPI, savers are still hard pressed to generate any real returns. 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.

"The decrease in CPI also means that the likelihood of The Bank of England increasing Base Rate in the near future reduces - which will be good news for mortgage borrowers, but is undoubtedly bad news for savers. The likelihood that rates will remain low in the short term means 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."

Research from moneysupermarket.com shows that providers are not helping the situation either, with average easy access rates falling from 0.74 per cent at the end of 2009 to 0.67 per cent currently and out of the 269 accounts for balances of £1,000, not one pays enough interest to offset the effects of inflation and tax. The best paying account is Halifax's Web Saver Extra paying 2.8 per cent.

However there is some good news, with the end of the tax year soon approaching, the ISA market has seen several providers increase their rates over the last few weeks in the hope of attracting customers' hard earned savings. Santander's Flexible ISA at 3.5 per cent and Barclays Golden ISA at 3.10 per cent both pay more than the best easy access account as well as being tax free. Alternatively if you can afford to lock away your savings over the long term, Clydesdale bank along with its sister bank Yorkshire have a five year fixed rate ISA paying five per cent, while the Principality BS are offering 4.5 per cent on their five year fixed rate cash ISA.

Kevin Mountford continues: "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."