Savers hammered by double whammy of surging inflation and falling interest rates
Millions of savers have been hit by a double whammy of surging inflation and falling interest rates.
The number of accounts which pay more than inflation has slumped by over 90 per cent in a month. There are only a few now that beat inflation and these require savers to lock away their money for at least a year.
It means most savers are losing money in real terms as the rising cost of living erodes the value of their nest eggs.
The number of accounts which pay more than inflation has slumped by over 90% in a month. There are only a few now and these require savers to lock away their money for at least a year
The Office for National Statistics (ONS) this week reported that inflation has reached a six-month high, as drivers were hit by higher prices at the pumps.
The Consumer Prices Index, which tracks the annual rise in the price of a basket of goods, jumped to 1.8 per cent last month – up from 1.3 per cent in December.
The ONS said the cost of living was also driven up by air fares. The bounce, which was bigger than predicted by economists, has turned the screws on savers, as rates offered on cash have also been slashed by banks.
Sarah Coles, personal finance analyst at Hargreaves Lansdown, said: ‘Savers have been hit with a double whammy of falling savings rates and rising inflation.
‘The impact of cuts in savings rates over the past six months has been softened by lower inflation – so now inflation is on the rise, we’re set to feel the pain of the cuts far more acutely.’
Analysis by Moneyfacts shows there were 331 deals which beat inflation when it measured 1.3 per cent in December. That number has fallen to 21 accounts that beat the new inflation figure of 1.8 per cent.
Anna Bowes, co-founder of Savings Champion, said: ‘Those who leave their cash festering with a High Street bank will really feel the effect of inflation.
‘They are being robbed as High Street banks pay some of the worst savings rates on the market.’
Earlier this week the Government-backed National Savings & Investments slashed rates and Premium Bond prizes for millions of customers.
Banks – which are flush with cash and no longer feel the need to offer decent rates – have now cut returns for savers. Some ISA accounts pay as little as 0.1 per cent interest.
Experts warned British households could also feel the squeeze as wage increases are slowing while inflation is rising.
Separate figures published by the ONS on Tuesday showed that the growth in average weekly earnings was 2.9 per cent in December, down from 3.2 per cent the previous month.
Ed Monk at investment manager Fidelity International said: ‘The rise in inflation to 1.8 per cent is a worrying sign for households, particularly given the fall in average wage rises.
‘It all adds to a difficult task facing new Chancellor Rishi Sunak as he prepares his first Budget next month.’
Some economists predicted that rising inflation could also spell bad news for borrowers as the Bank of England may be less likely to cut interest rates.
The official interest rate is 0.75 per cent and the Bank has previously hinted it could cut it to boost the economy, which would bring down mortgage repayments for millions.