Feb 20 ,2017 Writen By: Direct Bullion

FEB 14th 2017

A "lethal combination" of interest rate cuts and the cost of everyday items rising over the past year is hitting millions of savers   CREDIT:  SPY / ALAMY

Nearly every saver in Britain is seeing the spending power of their savings eroded, as just one in 30 savings accounts is keeping up with or beating inflation, analysis shows.

This time last year the interest rate on four out of five savings accounts were at least keeping pace with the cost of consumer goods, meaning the real value of most people's savings was protected.

But a "lethal combination" interest rate cuts and the cost of everyday items rising over the past year means millions of people's savings are now sitting in bank accounts declining in value.

Experts warned the situation was the worst it had been in six years, with people on fixed incomes and reliant on savings interest facing a major squeeze, which could force them to reduce spending.

The Office for National Statistics announced that the Consumer Price Index (CPI) had risen to a two-and-a-half year high of 1.8pc in Feb, up from 0.3pc this time last year. 

It was pushed up by rising food and fuel costs and experts warned inflation was set to rise further over the course of the year after Britain leaves the EU.

Meanwhile over the same period the number of inflation matching or beating accounts fell from 662 out of a 837 total (79pc), to 23 out of 697 (3pc).

Savings rates have been in consistent decline since 2012 as a result of the Bank of England gradually cutting Bank rate to a record low last year. However as in inflation also fell for much of that period the blow for savers was softened.

The average instant-access savings account has paid more than inflation since the end of 2014 but now the trend is sharply reversing. 

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Bank of England's Bank Rate since 2000

The average rate on easy-access accounts is now 0.15pc according to Moneyfacts. 

This means that if inflation remained at its current 1.8pc, savings would lose 1.65pc of their spending power in a year. This would see a £20,000 deposit worth less than £17,000 after ten years.

The only savings accounts which beat the new, higher rate of inflation are those which require savers to lock their money away for a minimum of four years. 

Andrew Hagger, a savings expert at MoneyComms, said: "This is the worst it has been since 2011 when inflation was rising at 5.2pc and no savings accounts were beating it. 

"The lethal combination of rising inflation and low rates will hit pensioners on fixed incomes hardest - it is a real blow for them. The only way they can get a better return for their money is by risking it on the stockmarket - but this will be too risky for many of them."

Rachel Springall, finance expert at Moneyfacts, added: “Unfortunately, the lack of rivalry among savings providers has meant brands such as NS&I have slowly crept up towards the top of the market, which has led to the inevitable decision to cut rates, which will hit millions of savers.  “Savers are clearly running out of options for an inflation-beating return, unless they lock their cash away for the long term or are prepared to place their funds in more riskier investments." 

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