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Just three cash ISAs now beat inflation
Inflation has remained at 2.7% but savers are still struggling to get a return.
by Michelle McGagh on Jan 15, 2013 at 11:14
Inflation may have remained at 2.7% last month but savers still have scant choice when it comes to choosing an account, with just three individual savings accounts (ISAs) beating inflation.
The Office for National Statistics announced today that the consumer price index (CPI) has remained at 2.7%. Although the good news is that it has not increased further, there is bad news for savers who are struggling to make their savings beat inflation.
To beat inflation a basic rate taxpayer, who pays 20% income tax, needs to find a savings account paying 3.37% and a 40% higher-rate income taxpayer needs to find an account paying at least 4.5%.
There are 844 standard savings and ISA accounts on the market but just three ISAs negate the impact of tax and inflation regardless of your tax position. There are no instant access, one-year bond or notice accounts on the market that beat inflation.
Coventry Building Society’s 60 Day Notice ISA is still paying the best rate of 3.1%. The Advantage Cash ISA from M&S Bank is paying 2.75% and Earl Shilton Building Society comes in third with its 90 Day Cash ISA paying 2.7%.
As ISA returns accumulate tax free the rate only needs to be 2.7% or more to beat inflation, regardless of your income tax bracket.
The impact of inflation should not be underestimated; £10,000 invested five years ago by a 20% taxpayer would now have the spending power of just £9,016.
Sylvia Waycot, finance expert at Moneyfacts.co.uk, said 2013 looked to be a ‘dreadful year for savers’ and there would be little hope for change.
‘Providers are not even pretending to offer competitive rates and with no real interest to be earned, inflation is really going to bite the weary saver,’ she said.
‘Today’s inflation news means that once again our money won’t buy us as much as we expect it to.’
Waycot said savers were being hit by a double whammy of high inflation and the introduction of the Funding for Lending scheme, which has made £80 billion available to banks and building societies to loan out as mortgages. Access to this money means banks and building societies no longer have to try and entice savers, whose money they have historically used to loan out.
‘Since August last year, when the government launched its Funding for Lending scheme, the savings market has become unrecognisable; products have been withdrawn, those that remain have had the rates cut and bonuses are fast becoming a thing of the past. Throw inflation into the mix and it spells intense misery,’ said Waycot.
‘All ages of society are affected by this, from the young trying to save deposits for first homes, to the elderly who are reliant on savings as an additional stream of income to supplement their pension.’
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