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Inflation spiralling: How to protect your savings

Tuesday, 19 January 2010 Writes Hazel Cottrell hazel.cottrell@consumerchoices.co.uk

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Inflation rose sharply last month while savings rates hit rock bottom. Is there any hope for savers?

The consumer price index (CPI), a measure of annual inflation, rose sharply from 1.9% to 2.9% in December, according to figures released today.

Now, more than ever, it’s crucial to check what interest you’re earning.

This is the biggest increase in inflation since records began, and means there are now very few savings accounts paying enough interest to beat inflation.

Darren Cook, spokesman at financial information company Moneyfacts.co.uk, said: “With savings interest rates stuck at their historical low, there is very little that savers can do to fight back.”

He added: “Savers need to secure a gross return on their savings of at least 3.63% to break even. Higher rate taxpayers need to achieve the near impossible by trying to find a rate of at least 4.81%.”

December was the third consecutive month that the CPI has risen, but the first time it has exceeded the Bank of England’s target rate of 2%.

Cook suggested that this sudden increase in inflation may have an effect on how long the Bank of England keeps the base rate at 0.5%.

Chris Eagle, commercial manager at Creditchoices.co.uk, said: “This latest jump in inflation is yet more bad news for Brits who have been struggling to protect their savings.

“Now, more than ever, it’s crucial to check what interest you’re earning and switch to a better savings account if you can.”

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