Savers to lose £43bn in inflation
The staggering sum shows just how much the double whammy of low interest rates and soaring inflation is affecting the nation's savings.
The figures, compiled by campaign group Save Our Savers for financial site, This is Money, show the crippling double impact on savers of inflation and the rock bottom base rate. The analysis comes ahead of the Bank of England meeting on Thursday to decide whether to raise the base rate from its record low of 0.5%.
Savings rates have plummeted from 2007 levels, when average instant access account paid 4.21%. Now savers are lucky to find an account offering even 1%, which the average new instant access account paying just 0.93%, according to financial information provider Moneyfacts.co.uk.
Rates are so far below both inflation indices of RPI at 5.6% and CPI at 5.2% that the value of savings is eroding in real terms.
If, as is expected, policymakers hold rates for a 32nd consecutive month this week, the £1.1trillion held in cash savings could decline in value by £43billion in just a year at current inflation rates.
Savers at a loss
If inflation continues to run at 5% - the average on the retail prices index (RPI) over the last year – it will eat £56.7billion of the real value of the money before interest is factored in.
Save Our Savers calculates that £14billion will be paid out in interest over the next twelve months. This is based on the average of all 'in play' savings rates. Add in an estimated £3bn worth of tax, based on the figure for previous years, and savers will be left with a loss of £43billion.
MPC acting 'illegally'?
This is Money reports that Simon Rose, of Save Our Savers, says savers have been abandoned by the Government. He accuses Bank policymakers of negligence and says that the Monetary Policy Committee may be acting illegally by failing to tackle inflation.
Rose says: "The Bank of England is legally obliged to keep inflation to the stated target of 2%. Why is Mervyn King not being roasted by the Chancellor for allowing it to soar ahead?
"Or is short-term political expediency considered more important than protecting the nation's savings and the long-term financial health of the country?"