Savers’ desperate search for a decent return on their money continues after the rate of inflation increased from 4% to 4.5%.
The rise in the Consumer Prices Index (CPI) means the measure is now more than double the Government’s target of 2%.
Last week, the Bank of England warned the rate is likely to rise before it falls, with CPI expected to hit 5% before the end of 2011.
To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 5.63% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 7.50%.
Taxpayers can choose from just two standard accounts that negate the effects of tax and inflation, both of which are five-year fixed rate ISAs.
For those paying the higher rate of tax, there are no accounts which cancel out the effects of tax and inflation.
One ray of savings hope for those looking to combat inflation came last week, however, with the news that National Savings & Investments has reintroduced its index-linked certificate.
The accounts grow above inflation (Retail Prices Index + 0.5%) but savers have been warned to act fast as NS&I can only accept a certain amount in deposits.
Sylvia Waycot, spokesperson for Moneyfacts.co.uk, said that after last month’s fall, today’s rise in inflation represented a further blow to savers.
“Every time inflation rises, spending power decreases and any hard earned nest egg or savings safety net is eroded yet further,” she added.
“The only certainty for anyone trying to supplement their income with savings interest is that it will result in disappointment.
“Over the last six months the number of savings accounts that beat inflation for basic rate taxpayers has dropped from 91 to two today, both of which are fixed rate ISAs.”
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