Pitiful interest rates and high inflation have wiped an average of 11p off the value of every \u00a31 left in a savings accounts over the past five years.<\/p>\n
The financial data firm Moneyfacts said that its calculations suggest that the average savings pot has lost 11 per cent of its value, and it called for the Bank of England to keep its base rate at 2 percentage points above the rate of inflation to stop savers\u2019 money being eroded by inflation.<\/p>\n
Moneyfacts said that since 2020 the average annual consumer prices index (CPI) measure of inflation has ranged from a low of 0.9 per cent in 2020 to 9.1 per cent in 2022, while average savings rates ranged from as little as 0.5 per cent in 2021 to 3.86 per cent last year. It said that \u00a31 saved in 2020 that earned the average savings rate would now be worth 89p in real terms after inflation.<\/p>\n
It comes as the chancellor, Rachel Reeves<\/a>, is considering a shake-up of cash Isas to encourage savers to invest their cash instead.<\/p>\n Moneyfacts argued that the Bank of England\u2019s base rate, which affects mortgage and savings rates, should be set at about 2 percentage points above the CPI measure of inflation, which the Bank aims to keep at 2 per cent.<\/p>\n Adam French from Moneyfacts said: \u201cThe Bank of England must play its part in setting sustainable rates that reward savers and ensure a steady supply of deposits which can be used to fund mortgages, loans and other consumer credit products.\u201d<\/p>\n Bank rate was at historic lows from 2009 for more than a decade \u2014 bad news for savers but great for anyone with a mortgage. It then rose rapidly from its all-time low of 0.1 per cent in December 2021 to a 15-year high of 5.25 per cent in August 2023 as the Bank tried to tackle inflation, which peaked at 11.1 per cent in October 2022. Bank rate has been cut four times to 4.25 per cent over the past year, and is forecast to gradually fall to about 3.5 per cent by next year. CPI inflation for the past year was 3.6 per cent. <\/p>\n All this has meant that there have not been many times in the past decade when savings rates have not beaten inflation.CPI averaged 9.1 per cent in 2022 but savings rates were 1.48 per cent on average, Moneyfacts said. Savings of \u00a310,000 would be worth \u00a310,148 after a year at a rate of 1.48 per cent, but if inflation was 9.1 per cent, that money would be worth \u00a39,302 in real terms.<\/p>\n French said that during the 12 years between 1995 and 2007 savers enjoyed returns at an average of 2.06 percentage points above the rate of inflation.<\/p>\n