Stubborn inflation punishes savers

To maintain the purchasing power of their savings, a basic rate tax payer needs to find a savings account paying 3.88% pa, while a higher rate tax payer at 40% needs to find an account paying 5.17%.

Basic rate tax payers have a choice of 118 accounts allowing for tax, that negate the impact of inflation, while only 55 accounts are available to 40% band tax payers.

Many of the accounts (53) that negate inflation are ISAs.

Savers hardest hit by the rise in inflation are those who rely on their savings to supplement their income, many of whom are pensioners. The average savings interest rate payable for a basic rate tax payer is in effect being eroded by 2.47% per year.

Michelle Slade, spokesperson for Moneyfacts.co.uk, commented: "Inflation continues to antagonise prudent savers who are already struggling to achieve a competitive return on their money.

"The negative effect of inflation has often been forgotten by savers and can quietly erase hard earned gains.

"Basic rate tax payers need to earn 3.88% just to maintain the spending power of their savings, while higher rate tax payers at 40% need to earn 5.17%, a level that is only available on a handful of products.

"For savers seeking the safe haven of a deposit account their best prospect for beating inflation is a cash ISA.

"Whilst there are more cash ISAs readily available, longer term fixed rate bonds can also negate the effects of inflation, but most savers are only prepared to commit capital for short periods.

"In recent weeks savings rates have started to rise, but no where near enough to combat the effects of inflation.

"Those who rely on their savings to supplement their income have been hardest hit, many of whom are pensioners."