Low interest rates hitting savers

Coins in handThe eroding impact of inflation on hard-pressed savers means that £10,000 invested five years ago would have the spending power of just £9,016 today, a financial information website has found.

Moneyfacts.co.uk warned that 2013 has started as a "dreadful year" for savers, as it made its calculation, which is based on average rates of interest and tax at 20%.
Just three accounts, all of which are Isas, beat inflation regardless of a saver's tax position out of the 844 standard savings and Isa deals on the market, Moneyfacts said.

It said that to beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 3.37% a year, while a higher rate taxpayer at 40% must find one paying a minimum of 4.50%.

Savings rates have plummeted in recent months following the introduction of a multibillion-pound Government scheme in August to boost lending to firms and households, which involves giving lenders access to cheap finance.

Analysts have said that the Funding for Lending scheme has made lenders less reliant on the need to attract savers' deposits, making the savings market "unrecognisable" as providers rush to slash savings rates.

Sylvia Waycot, finance expert at Moneyfacts, said that the average easy access account today pays 0.88%, down from 0.91% a year ago.
Ms Waycot said: "2013 is starting out as a dreadful year for savers with little hope of change.

"Providers are not even pretending to offer competitive rates and with no real interest to be earned, inflation is really going to bite the weary saver.

"Today's inflation news means that once again our money won't buy us as much as we expect it to."
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