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24/04/07
69% of easy access accounts pay insufficient interest to counteract the shrinkage caused by inflation

When inflation rises, savers see the value of their deposits shrink as the buying power of their money diminishes. To counter this effect interest is paid on deposits by banks. However, a report from the BBC's Working Lunch programme has revealed that more than two thirds of instant access savings accounts fail to pay enough interest to counteract the impact of inflation.

One measure of inflation is the Consumer Prices Index (CPI) currently at 3.1%. The programme found that 25% pay of no notice accounts pay less than 3.1%.

When looking at the Retail Prices Index (RPI), the traditional measure used in setting pensions and in wage negotiations which is currently at 4.8%, more than 69% of easy access savings accounts pay insufficient interest to counteract the shrinkage caused by inflation.

The situation is made worse when you factor in taxation. Tax payers on the high 40% rate will need a savings rate of at least 6% to beat the RPI.

The the Bank of England has admitted that prices have been rising too fast, and savers are starting to see the affect on their savings.