Eight in 10 savings accounts LOSE cash: Inflation goes up - but banks still pay interest rates just above zero
More than eight in ten savings accounts are paying such a paltry interest rate that customers are effectively losing money, research revealed yesterday.
Financial experts said savers have become the 'sacrificial lambs' of the Bank of England's desperate attempts to rescue the economy.
Because the Bank has held down interest rates, the value of their savings is not keeping pace with inflation, so savers are losing money in real terms.
Sacrificial lambs: In a desperate attempt to rescue the economy, the Bank of England held down interest rates to the detriment of savers
The situation is worst for higher rate taxpayers for whom more than 90 per cent of deposit accounts give a negative return.
Banks which are part-owned by taxpayers, such as Halifax and Lloyds, are among the worst of the 'savings sinners', paying rates as low as 0.05 per cent.
For a basic rate taxpayer with a £10,000 nest egg, this is worth £4 a year after tax - or £3 for a higher rate taxpayer.
The crisis was highlighted yesterday by figures showing a jump in the annual rate of inflation. It rose from 1.1 per cent in September to 1.5 per cent in October, according to the Office for National Statistics.
This was the first increase in the consumer prices index measure of inflation since February, and comes amid warnings that inflation will continue to climb in the coming months.
'Savings sinners': Halifax and Lloyds pay rates as low as 0.05 per cent
At this level of inflation, Britain's 2.9million higher rate taxpayers are losing money in real terms if the interest rate paid by their bank or building society is below 2.5 per cent.
This calculation takes into account the fact that tax is deducted from interest payments.
But 91 per cent of savings accounts pay below this rate, according to research from the comparison website Moneynet.
For basic rate taxpayers, the situation is equally bleak. To beat inflation, they need an interest rate of at least 1.875 per cent. But around 80 per cent of savings accounts are paying less than this.
Andrew Hagger, a Moneynet financial expert, said: 'Savers are the sacrificial lambs of the current economic crisis. They are being virtually ignored.
'For pensioners who rely on their savings to pay the bills, it is devastating. For younger people who should be saving money, it is taking away the incentive to save.'
The survey, which looked at 744 savings accounts, excludes Individual Savings Accounts and fixed-rate bonds.
The average savings account is paying 0.98 per cent to its customers, according to Moneynet's research.
At this interest rate higher rate taxpayers with a £10,000 nest egg, who must pay tax at 40 per cent on their savings, this are getting only £58.80 after tax each year. Basic rate taxpayers, who pay tax at 20 per cent, get only £78.40.
Before the Bank started cutting the base rate in October last year, the average savings rate was 3.94 per cent.
This paid £236 a year after tax on a higher rate taxpayer's £10,000 nest egg or £315 on a basic rate taxpayer's £10,000.
The biggest losers are pensioners who rely on investment income to boost their modest pensions.
Charities warn that pensioners are being forced to make dramatic cutbacks such as switching off the heating and buying cheaper food.
Of all the savings accounts with Britain's 58 building societies, more than 40 per cent are held by someone over the age of 55.
Economists warned yesterday that the situation is likely to get worse, not better, as inflation is expected to keep on climbing for the next few months, possibly hitting 3 per cent or above early next year.
But some forecast that the Bank will leave the base rate unchanged at 0.5 per cent until late next year because the rise in inflation will only last a few months.
Although inflation is relatively low in historic terms any increase is a blow for workers at a time when many are having their pay cut or frozen, or are losing their jobs.
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