Savings suffer £36bn inflation hit
Britons saw the value of their savings eroded by £36 billion during the past year as a result of high inflation, research has indicated.
Consumers collectively have £1.003 trillion held in savings and current accounts, around £110 billion of which is held in accounts that do not pay any interest at all, according to accountants UHY Hacker Young.
Overall, the average return people are getting on their money is just 1.6%, well down on inflation as measured by the Retail Prices Index, which was running at 5.2% in April, the latest month for which figures are available.
Even accounts that have traditionally paid higher returns, such as tax-free ISAs and fixed rate bonds, are currently only paying average interest of 2.57%. As a result, Britons have collectively seen the real value of their savings drop by £36.45 billion during the past year, once interest of £15.75 billion is taken into account.
People's savings are also being diminished by inflation if the Consumer Prices Index (CPI) measure is used, with this running at 4.5% in April, slashing the buying power of people's deposits by £29.42 billion.
Mark Giddens, partner at UHY Hacker Young, said: "The amount of money eroded away through inflation is staggering. In this climate of high inflation, savers need to be more proactive and shop around to get the best rates.
"Unfortunately for savers, the kinds of savings rates on offer from the biggest banks are unlikely to change any time soon."
A basic rate taxpayer needs to earn interest of 5.63% in order to make a real return on their money once CPI inflation and tax are taken into account. Higher rate taxpayers are in an even worse position, needing returns of 7.5% to stop the value of their deposits being shrunk by inflation.
There are just two accounts available that enable people to make a real return against CPI inflation, both of which are five-year fixed rate ISAs, meaning savers have to lock away their money for a five-year term, while they can only invest a maximum of £5,340 in this tax year.
There are currently no savings accounts available that enable people to beat inflation as measured by the Retail Prices Index.