How inflation affects your savings

how inflation affects savings

NINE out of 10 people are worried about the impact of inflation on their finances, although only 5% know what the current rate is.

NINE out of 10 people are worried about the impact of inflation on their finances, although only 5% know what the current rate is.

A fifth of savers have not got a clue if they are effectively losing money if the rate of inflation is higher than their savings interest, Post Office research found.

And almost a quarter have no idea if they have a rate that is higher or lower than inflation.

With the CPI currently at 4.5%, a basic-rate taxpayer needs to earn a gross rate of 5.625%, or 4.5% tax free on an ISA, just to maintain the spending power of

their savings.

There are no standard savings accounts offering 5.625% gross, even if you opt for a five-year, fixed-rate bond.

There is a handful of five-year cash ISAs paying 4.5% or more, including Coventry Building Society at 5%, Birmingham Midshires at 4.65% and Yorkshire at 4.50%.

The Post Office has launched a second issue of its inflation-linked bonds, which pay RPI (currently 5.2%) plus 1.5% gross, so that is 5.36% net for a basic-rate taxpayer and NS&I offers RPI plus 0.5% tax free – 5.7% net.

Andrew Hagger, from Moneynet.co.uk, said: “Savers have had a really tough deal for the past two years with low rates and high inflation.

“It can be more sensible to repay outstanding debt rather than earn next to nothing on savings.”

Source: www.mirror.co.uk

Category: Bank

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