Inflation hits 4% - what does it mean for savers?

As inflation hits 4.00%, Julie Smith, savings analyst at Fair Investment Company explains what it means for savers.

"In this kind of low rate environment, it is really important to make use of your tax free allowance. An ISA should always be your first option when it comes to savings because the tax free element means you can earn more than an equivalent savings account. It may also be worth looking at making a transfer and/or consolidating all your old ISAs into one new one with a better rate.

"If you've used your ISA allowance, it is worth looking at fixed rate savings bonds. With the base rate at 0.5%, and the uncertainty around whether it will rise this year or even in 2011, it may be worth fixing into a two or three year deal and at maturity, you may be in a better position to decide where the markets are going.

"But having said all that, the only real way to beat inflation at the moment is to take a bit more risk. With inflation now at 4.00%, basic rate tax payers have to be earning 5.00% on their savings to stop the true value of their money being eroded, for higher rate tax payers its 6.67%. Even in an ISA, you need to be earning 4.00% for your money to simply maintain its value.

"Some options to consider may be other income producing assets such as structured products or equity income funds, but you need to make sure you fully understand all the products that are available to you, and the risks involved, before making any decisions."