Savers see some respite but inflation remains above target

The Momentum UK Team 15 February 2012

Falling inflation is good news for savers as an increasing number of savings accounts now offer the opportunity for growth in real terms.

Figures from the Office for National Statistics show that Consumer Price Index inflation has now fallen to 3.6%, the lowest level in 18 months.

This means that a basic rate tax payer must find a savings account offering at least 4.5% in interest to prevent their capital eroding in value.

According to Moneyfacts there are now 47 standard savings accounts on the market that currently offer inflation beating rates, compared to 8 on offer last month, when a rate of 5.25% was required to match the rising cost of living.

However, in spite of falling inflation rates many households will continue to struggle and the 3.6% figures remains almost twice the government target rate of 2%.

The 47 inflation beating standard savings account represent a small drop in the ocean when compared to the 1,100 available on the market.

Sylvia Waycot, spokesperson for Moneyfacts said:

"Today's accounts favour introductory offers which mask the lower rate that is applied on first anniversaries, this means savers need to change their habits from mild interest to a state of ready alertness to changes in the savings account market.

"Today's rate of inflation means hundreds of thousands of savers need an account paying a hefty 4.50% before they earn a real rate of return on their savings and yet the average no notice savings account only pays a miserly 0.92% which shows the size of the problem.

"The number of savings accounts that beat inflation has risen from a miserly eight last month to a much more respectable 47 today, many of which are fixed rate ISAs."

The above target inflation rate may be hitting pensioners hardest according to Director of Saga, Dr Ros Altman:

"This high inflation figure, coupled with the latest announcement from the Bank of England to extend quantitative easing by a further £50bn, is another bitter blow for pensioners.

"QE was originally supposed to be a policy to fight deflation, yet in reality it has turned out to be a policy that has created high inflation and whittled away older people's purchasing power, while at the same time reducing the value of their pensions."

For information on a range of savings options, visit our savings section.