`Spike` in inflation means savers get negative returns

29 January 2010

The recent increase in inflation has meant that no variable-rate savings accounts currently offer a real return, according to The Times.

The Bank of England this week announced that inflation rose to 2.9% in December, up from 1.9% in the previous month.

To make a real profit on their savings, higher-rate taxpayers must now find a savings account paying 4.83% gross interest or more to beat inflation and tax, while basic-rate taxpayers need 3.63% - and no variable-rate savings accounts pay interest at this level.

This means that the `purchasing power` of savings - and therefore the protection against debt they can offer - decreases over time.

A spokesperson for debt management company Gregory Pennington said: "It`s true that savings can technically lose value over time when rates are low and inflation is high, but we would still advise people to put money into savings where possible. Even if their savings are shrinking slightly in real terms, they still provide good protection against debt, which is particularly important in the current climate."

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Gregory Pennington offer debt management plans as well as a range of other debt solutions. If you are worried about debt, contact one of our expert debt advisers now.

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