Inflation 'Ruining Power Of Savings Accounts'

A report highlighting deteriorating consumer saving power claims £10,000 invested five years ago in the average savings account would only be worth £8,844 today.

The website moneyfacts.co.uk issued the findings - charting the effects of taxes and inflation on savers - as official figures credited slowing fuel cost rises and summer discounting of autumn clothing for easing inflation.

The Office for National Statistics said the Consumer Price Index (CPI) measure slowed from an annual rate of 2.8% in July to 2.7% in August - also spurred by a lower rise in air fares compared to the same period last year.

The fall in the CPI rate was credited to clothing and footwear inflation coming at 2% compared to 2.8% 12 months previously, at a time of year when retailers were introducing new full-price autumn ranges.

Meanwhile, petrol prices rose 2p per litre compared to a rise of 3.5p per litre in August 2012, mirroring movements in oil prices.

Air fares were up 9.4% compared to 10.2% a year ago, with the main downward effect coming from domestic routes.

The ONS said the most notable upward contribution to inflation came from furniture, household equipment and maintenance where prices rose for a variety of furniture items and household appliances.

After the figures were released, moneyfacts suggested only three of the 840 ISA and non-ISA accounts on the market now negated the effects of tax and inflation on savers.

It calculated that to beat inflation, a basic rate taxpayer at 20% needed to find a savings account paying 3.38% per annum, while a higher-rate taxpayer at 40% needed an account paying at least 4.5%.

The effect of inflation on savings, it said, meant that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £8,844.00 today.

Moneyfacts editor Sylvia Waycot said: "Inflation may have fallen but it is still high enough to ruin the spending power of any feeble interest paid on today’s savings accounts, which leaves the elderly reliant on savings income and the young saving for a house deposit high and dry.

"It is time to start calling savings accounts by a different name as 'savings' suggests growth and the reality is one of stagnation."