Inflation eats away at High Street savings rates

by Gill Montia

Story link: Inflation eats away at High Street savings rates

Financial data firm, Defaqto, has been taking a look at the impact of rising inflation on savers.

In recent months, High Street savings rates have been rising, as banks and some building societies struggle with the lack of liquidity in the money markets and compete to attract retail deposits.

However, inflation rose to a 16-year high of 5.2% in September and Defaqto points that out a basic rate taxpayer now needs a gross rate of 6.5% to ensure savings are not eroded by rising living costs.

Higher rate taxpayers will be looking for a gross rate of 8.67% to achieve the same end.

Last week’s reduction in the Bank of England’s base rate, to 4.5%, has not helped matters as rates on variable rate savings accounts are likely to fall in response to the 0.5% cut.

Those confident of not needing to make withdrawals for a year could consider locking into an inflation-linked savings deal, such as that offered by National Insurance & Investments.

They should, however, take into account analysts’ predictions that inflation could fall sharply in the months ahead.