Just 'one in five savings accounts giving customers return on their money'

Savers could be losing out as inflation rises

Savers are being urged to check their rates to avoid losing out

Only one in five savings accounts is paying interest rates which give consumers a real return on their money, new research has showed.

The key Consumer Prices Index (CPI) measure of inflation rose to 1.5 per cent last month, up from 1.1 per cent in September.

The increase means basic rate taxpayers now need to earn interest of 1.875 per cent on their money just to stop the value of their savings eroding in real terms, once inflation and tax are taken into account.

But research carried out by financial website Moneynet.co.uk found that 78 per cent of variable rate accounts, excluding ISAs, are paying interest of this level or less.

Higher rate taxpayers face an even greater challenge in getting a real return on their money, as they need to receive interest of at least 2.5 per cent in order to stop the value of their savings falling.

Andrew Hagger, of Moneynet.co.uk, said: 'With inflation rising sharply, savers need to check their rate to ensure they're not losing out - anything less than 1.875 per cent for a basic rate taxpayer and the value of their cash is being eroded.

'The message is clear: don't let your savings languish in a sub-standard account - you may have to move your emergency or rainy day fund to an account offering a 12-month bonus and then switch away when the bonus falls away.'

But despite the low rates being paid by the majority of savings accounts, it is still possible to earn a real return on your money.

West Bromwich Building Society is offering interest of 3.35 per cent on its Branch Bonus Account, although this includes a 0.6 per cent introductory bonus and consumers can only make two withdrawals a year.

Citibank has a rate of 3.25 per cent on its instant access Flexible Saver, but as this includes a 2.25 per cent bonus paid for the first 12 months, consumers will need to make sure they move their money after the first year.

The best way to ensure your savings are increasing in real terms is to make full use of your ISA allowance.

The over-50s can save up to £5,100 each year in a cash ISA, with the current limit of £3,600 increasing to this level for other age groups from April, and because ISA returns are tax-free, consumers only need to earn interest of more than 1.5 per cent to beat inflation at its current level.

Chesham Building Society has the best ISA rate on offer at the moment, with 3.25 per cent on savings of at least £500, although consumers have to give 180 days notice to withdraw their money.

Fixed rate bonds are also offering good returns for people who are prepared to lock up their money for a set period of time.

The Government-backed National Savings & Investments has a one-year bond paying 3.95 per cent, while Skipton Building Society is offering a five-year one paying 5.35 per cent.

National Savings & Investments also offers a range of index-linked savings certificates, which pay a tax-free return based on the Retail Prices Index measure of inflation plus a fixed interest rate which is set when the bond is taken out.

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