Savers suffer as inflation continues to rise

With inflation showing no signs of easing after today's announcement that the Consumer Price Index (CPI) rose again in April to 3.7 per cent, anyone looking to put their money away should be aware of the impact this is having on their savings.

Analysis from Britain's number one comparison site moneysupermarket.com shows that since December 2009, a higher rate tax payer with a pot of £30,000 would have seen the value of these savings depreciate by up to £206, with standard tax payers losing up to £121.

To counter inflation basic rate tax payers will now need an account paying at least 4.63 per cent to gain benefit in real terms from their savings, increasing to 6.17 per cent for higher rate tax payers. Taxpayers in the new 50 per cent tax band would need an account paying at least 7.41 per cent.

Currently none of the 257 easy access savings accounts for balances of £1,000 pays enough interest to offset the effects of inflation and tax. The top paying account is the Coventry Building Society 1st Class Postal account which offers an interest rate of 3.00 per cent.

Kevin Mountford, head of banking at moneysupermarket.com, said: "There's no denying that current inflation figures and low interest rates are having huge impact on customers' savings. 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 maximise the return on your savings. For example, it's a no-brainer to utilise your tax free ISA allowance which increased last month to £5,100 for cash savings, and consumers need to be aware of any withdrawal penalties attached to their account."