Savings rates hit seven year high

by Gill Montia

Story link: Savings rates hit seven year high

Banks and building societies are offering the highest savings rates in seven years.

Since the onset of the credit crisis, cash-strapped lenders have been keen to boost their retail deposits and according to research from financial website, Moneyfacts, competition is fierce, with savings rates on offer as high as 10%.

Accounts that require no notice for withdrawals are the most popular among savers and Moneyfacts names Anglo Irish Bank as the best provider, with a rate of 6.4%.

Overall savings rates are up 1.3% on December 2006, when the base rate was last at 5%.

Strong competition in the market is likely to continue because figures from the Office for National Statistics show that the savings ratio, which measures how much households are putting aside as a percentage of their total available resources, is at its lowest level since 1959, at 1.1%.

However, inflation is rising and according to financial analyst, Defaqto, savers who are paying income tax at 40% now need to earn 7.67% on savings to keep ahead.

The official rate of inflation, based on the Consumer Price Inflation shot up from 3.3% in May to 3.8% in June.

Defaqto has used the Retail Price Index, which includes mortgage costs, in its calculations. It is currently measuring inflation at 4.6%.

From this the analyst concludes that no easy access accounts currently pay rates that benefit higher rate tax payers in real terms.