High inflation causes one in ten Brits to give up saving

The strain on consumers' finances due to high inflation, which dropped to 4.0 per cent in March, has caused nearly one in ten Brits to stop saving in 2011, according to a survey by moneysupermarket.com.

The survey reveals one in five people save less than they used to because of the rising cost of living, and over half the nation can't afford to save at all. As an alternative to saving, one in eight of moneysupermarket.com users have decided to take advantage of low interest rates to overpay their mortgage instead.

Following today's announcement by the Bank of England that inflation dropped to 4.0 per cent, basic rate tax payers will now need an account paying at least 5.01 per cent to gain benefit in real terms from their savings, increasing to 6.67 per cent for higher rate tax payers and 8.01 per cent for 50 per cent tax payers. No easy access savings account currently beat the effect of inflation and taxation.

Kevin Mountford, head of banking at moneysupermarket.com said: "With cuts in benefits, rises in National Insurance contributions, the lowering of the higher rate tax threshold and the general increase in the costs of living, many Brits are feeling the squeeze. Unfortunately, savings become one of the first casualties when people have to tighten their purse strings.

"Having a saving pot to fall back on to when times are difficult is vitally important, and while it may not be a priority for many people, trying to put some money aside, no matter how small, can make a real difference. In an ideal world, you should have three months' outgoings put aside for a rainy day, but for many people this will seem an unachievable amount. However, taking control of your finances and reviewing all of your outgoings to see where you can get better value can help free up vital cash which can then be used for savings. People should also be thinking about ways to maximise their income and spending wisely, for example using discount vouchers and shopping around.

"Those savers who have stopped saving because they believe rates are too low for switching to be worthwhile, are missing out on some of the best rates we have seen since base rate dropped to record lows. If you are prepared to lock away your money for five years, then you can get a rate as high as 5.00 per cent - ten times that of base rate!"