Not one standard easy access savings account currently beats the rate of inflation. This means all savers with cash in one are losing money in real terms as their purchasing power is diminished.
A MoneySavingExpert.com investigation shows there is not a single taxable easy access savings account that pays at least 3.5%, the current rate of inflation.
And that situation is made even worth when tax is taken into account. Basic rate taxpayers would need to earn 4.37% to keep pace with inflation (as then their after tax interest would be 3.5%) and higher rate taxpayers 5.83%.
The stats are a further blow to savers who have already seen paltry rates on the back of the historic low base rate. Worst hit are those who leave their cash languishing in high street savings accounts earning less than 1%, even though it is possible to earn far more (see the top Savings guide for the best deals).
Basic rate taxpayers can beat inflation with a fixed rate if they're prepared to lock away cash for up to five years - though of course over that time inflation will vary and could be higher or lower. However, only 38 of the 277 fixed rates on the market pay the 4.37% or more basic rate taxpayers need to beat the current rate. None pay over 5.83% (see the top fixed rates guide).
Meanwhile, just two of the 120 easy access tax-free cash Isas pay 3.5% or more without any strings attached (see the top cash ISAs guide).
Why inflation hits your cash
Inflation is the rate at which prices rise, if it continues at this rate over a year, something which on average now costs £1,000 will need to cost £1,037 in a year.
Therefore, unless your money in the bank grows by that amount, by keeping your cash there, your purchasing power is actually being decreased meaning its a losings not a savings account.
The Government's latest figure for the official Consumer Prices Index (CPI) inflation stood at 3.5% in January, up from 2.9% the month before.
However, the Retail Prices Index (RPI), which also includes housing costs, stands at 3.7%. For many, that will be their real rate of inflation.
How many savings accounts beat the current rate of inflation?
|Account type (pre-tax rate)||No. of accounts available (% of total)|
|Easy access accounts beating inflation for a non-taxpayer (at least 3.5%)||0 (0%)|
|Fixed rates beating inflation for a non-taxpayer (at least 3.5%)||112 (36%)|
|Fixed rates beating inflation for a basic rate taxpayer (at least 4.37%)||38 (14%)|
|Fixed rates beating inflation for a higher rate taxpayer (at least 5.83%)||0 (0%)|
|Easy access Isas beating inflation (at least 3.5)||2 (2%)|
|Fixed rate Isas beating inflation (at least 3.5%)||34 (39%)|
One way to beat inflation
Martin Lewis, MoneySavingExpert.com creator, says: "The imperative right now is for everyone to earn the maximum rate. Even if that's less than inflation, the more you earn the less the impact.
"Therefore, it is crucial to check what you're earning and if it's anything less than 3% try to better it if you can."
"If you want to guarantee to beat inflation, for savings up to £15,000, National Savings & Investments (NS&I), the Government run bank, has index linked savings paying 1% above RPI, tax-free, that's designed for you to lock your money away for three years.
"With RPI now 3.7%, that's a 4.7% after-tax rate. To earn that in normal savings account, a basic rate tax payer would need 5.9% pre-tax (higher rate payers, 7.8%) and rates that high just don't exist.
"If inflation drops, so would the rate you earn, and while many predict reasonably high inflation going forward, there's no guarantee. For instance, this time last year it went negative.
"Though as it's always going to have a rate higher than inflation, at least your savings would grow in real terms."
Further reading/Key links