Money News

Inflation has cost savers £2,500 over 10 years

By Martin Fagan

Cash-strapped Brits fail to factor in effect of inflation on savings.

Failure by savers to factor inflation into their savings plans has cost them almost £2,500 in the last 10 years, according to Yorkshire Building Society (YBS).

YBS said inflation can have a significant effect on a person's savings. Over 10 years, someone with a “typical” savings pot of £11,648 in an easy-access savings account would have earned £1,624 in interest making £13,272.

However, when factoring for inflation, their savings would need to have grown to £15,700 to have the same spending power as when they invested 10 ago - a difference of £2,428.

UK consumers are tightening their belts in a number of ways, said YBS: some are using vouchers or discounts (72%), seeking out supermarket offers (62%) and eating out less often (55%).

In addition, 45% of people now choose to shop at cheaper supermarkets, nearly 40% take a packed lunch to work and 34% use their cars less frequently.

However, YBS added that less than one in five people (19%) are checking to ensure their savings are not being eroded by inflation.

"While it’s impossible to predict what happens in the future, investors need to be aware of the spending power of their money,” said Simon Broadley, from the Yorkshire Building Society.

“Many consumers are not looking at inflation when considering their savings options.”

Michelle Slade, spokesperson for consumer finance website Moneyfacts, said: "The combination of low savings rates and above-target inflation is effectively reducing the spending power of people’s savings.

“Only a handful of saving accounts negate the effects of tax and inflation, so savers really need to shop around to get the best deal. Neglecting to do so could really diminish the value of prudent savers’ money."