Savings accounts deliver little return for the majority

It has been estimated that the majority of savings accounts are failing to provide savers with a genuine return on their money.

A marriage of low interest rates and rising inflation have neutered many savings accounts after tax payable on the interest is factored in, it has been claimed.

News that the Consumer Prices Index rate of inflation climbed from 1.1 per cent to 1.5 per cent last month has put savings accounts under even greater pressure.

Moneynet, the personal finance website, has calculated that basic rate taxpayers must look for interest rates of at least 1.875 per cent if their savings are to reap a real reward. For higher rate taxpayers, savings accounts must offer interest rates of 2.5 per cent before there is a genuine return.

Yet a mere 69 out of 744 of variable rate savings accounts deliver interest of more than 2.5 per cent, while just a fifth of accounts provide rates above 1.8 per cent.

On average, savings rates, outside of ISAs and fixed rate bonds, are doing little better than nudging 0.98 per cent, Moneynet said.

Andrew Hagger of Moneynet commented: “If inflation continued to rise, avers will find it increasingly tough to get a real return on their money. It’s a miserable time for those working to put some money aside and this looks like it’s not going to get any better in the months ahead.”

Fixed rate savings, however, offer more of an attractive deal for those who can afford to lock their money away.