Inflation means savers need 6% to earn return

New research highlights how much inflation is eating away our savings as Bank of England economist says it will fall in 2012.

Despite inflation falling in November, research shows that savers need an account paying 6% to achieve a real return on their savings. This rises to 8% for higher-rate taxpayers. Sadly, not a single account currently negates the effects of tax and inflation, no matter which inflation index you use.

The research from financial data provider moneyfacts.co.uk also found that the average instant-access savings account pays a derisory 0.93% interest.

The combination of both those factors means that £10,000 invested in an average account five years ago would be worth £9,210 today.

The top instant-access savings account is currently the AA's Internet Extra Issue 5, which pays 3.2% AER, while the Nationwide MySave Online Plus pays 3.12%.

Inflation hitting living standards

And research from retirement income company MGM Advantage claims the average household needs to find an extra £698.66 per person to maintain last year’s standard of living due to inflation.

For households where the main occupant is aged 65-74 that figure rises to £1,092.25.

Sympathy for savers

Meanwhile, a leading Bank of England economist has admitted that he feels sympathy for hard-pressed pensioners and savers who are being hit by the double whammy of low interest rates and high inflation.

Spencer Dale, who is on the Bank’s Monetary Policy Committee, said: “I can understand why, to many, it seems unfair that those with high levels of debt and borrowing should benefit from lower rates.”

But he added that the Bank’s policy of pumping money into the economy and maintaining low interest rates had prevented “a far deeper and longer recession”.

His comments in a speech at business media organisation Bloomberg followed a protest outside the Bank of England by campaign group Save Our Savers last week.

He said: “Savers and pensioners in our society have much to be angry about. But I’m not sure that anger is best directed at monetary policy.”

Inflation to 'fall fast' next year

Dale also forecast that 2012 would be “the year in which inflation fell sharply”. He said he expected Consumer Prices Index (CPI) inflation to fall back to the “low 3s” by the end of March.

But he admitted that how far and how fast inflation would fall for the rest of the year was much more uncertain.

If you're looking for a better return on your savings, take a look at our savings account comparison centre.

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