Titles that covered this article included the Daily Telegraph, the Financial Times, the Daily Express and the Daily Mail (18 June 2012).
- Quantitative easing has done its part in damaging savings
UK Savers are losing nearly £18 billion a year as inflation continues to erode away the interest earned by their savings and current accounts.
Low interest rates across savings and current accounts, combined with high levels of inflation (RPI 3.5%) means that the total value of the nation’s savings are gradually declining in value.
The Bank of England’s quantitative easing programme has also contributed, ensuring that the rate at which banks pay interest in order to attract deposits has remained exceptionally low.
Even traditionally higher interest savings accounts, such as ISAs or other fixed term accounts, pay an average of just 2.86% interest per year, which is below inflation.
Bank of England figures reveal that over £115 billion is currently deposited in accounts yielding 0% interest. Money deposited in these non-interest bearing accounts, as well as any account offering interest rates below inflation, will actually decline in value on a monthly basis as the cost of living continues to rise.
Mark Giddens, tax partner in our London office, comments: ‘Savers are losing a staggering amount of money as inflation slowly erodes away billions from the nation’s savings.’
‘Central banks are doing all that they can to keep interest rates low and that feeds through to deposit rates. This intervention ensures that savers are unlikely to see rates raised in the near future. Savers need to be proactive and shop around in order to get the best rates for their savings.’
The consolidation of banks during the financial crisis may have stifled competition over interest rates.
Mark continues: ‘When you consider the lack of big competitors in the market for high-street savers, it is clear that there are not nearly enough entities competing to offer customers the best deals.’
‘In this kind of environment, the onus is very much up to the consumer to do their own leg-work and to find the best savings for themselves. Unfortunately for savers, the kinds of savings rates available a few years ago are unlikely to be back in the near future.’
Interest from savings accounts eroded by inflation
|Total money in UK current and savings accounts||£1,030,968.00 million|
|Annual interest on this amount||+ £18,263.52 million|
|Value of savings eroded by inflation in a year before interest (RPI)||– £36,083.88 million|
|Value of savings eroded by inflation in a year after interest (RPI)||= £17,820.36 million|
|Value of savings eroded by inflation in a year before interest (CPI)||– £30,929.04 million|
|Value of savings eroded by inflation in a year after interest (CPI)||= £12,665.52 million|
NOTE: Interest rates as calculated in March 2012.