Money News

Savings in danger as inflation rises

Brits now need to earn at least 2.38% interest on their savings, to prevent them being eaten away by inflation.

Savers need to keep a close eye on the interest rate they are getting, as rising inflation threatens to shrink savings in real terms.

The latest figures show that the Consumer Price Index (CPI), a measure of inflation, rose sharply from 1.5% to 1.9% in November.

As a result basic-rate taxpayers now need to secure a return of at least 2.38% to beat inflation. This is no mean feat as the average no notice savings account pays just 0.81%, according to financial website Moneyfacts (www.moneyfacts.co.uk).

Higher-rate taxpayers will need to find an account paying at least 3.17%, which Darren Cook, spokesperson for Moneyfacts, said is “near impossible”.

Furthermore, experts predict that inflation could rise further over the coming months.

Mark Bolsom, of foreign exchange payments specialist Travelex, said: “We expect figures to continue climbing, as rising oil prices, a weaker pound and the reversal in VAT have caused inflationary pressure.

He warned: “We could very well see consumer price inflation hitting the 3% mark early next year.”

Chris Eagle, commercial manager at Creditchoices.co.uk, advised: “Beating inflation is a crucial challenge for all savers, but especially for those who rely on income from their savings, such as pensioners.

“For the best long-term returns, make sure you are making the most of your ISA allowance and consider locking up some non-essential cash in savings bonds.”