The latest inflation figures may have shown that the cost of living has continued to fall, but the news is less bright for savers who are still struggling to find decent returns on their money.
The consumer prices index (CPI) fell from 1.6% to 1.5% in August, meaning that a basic-rate taxpayer needs to find a savings account paying interest of 1.88% a year to keep up with inflation once tax is taking into consideration. (Someone paying higher-rate tax at 40% needs to find an account paying at least 2.5% to keep up with inflation and tax.)
But fewer than one in six non-Isa accounts on the market today allows even basic-rate taxpayers to do that.
It comes following years of misery for hard-pressed savers. The experts at Moneyfacts have calculated that £10,000 invested five years ago in an account paying average rates of interest would have the spending power of £8,723 today, once tax is taken into account.
“Inflation may have fallen, but thanks to the paltry interest paid on savings, it is actually making little difference to savers after the taxman has had his share,” said Sylvia Waycot, of Moneyfacts.
The picture is slightly brighter when it comes to tax-free Isas, but even then savers need to make sure they find an acceptable rate of interest. A total of 116 cash Isas out of 224 on the market currently offer inflation-beating rates.
“This makes an Isa the obvious choice for any taxpaying saver but, sadly, even these accounts are losing their sparkle as many providers put little effort into attracting ISA money,” said Ms Waycot.
When Isas and non-Isas are counted together, there are 867 savings accounts on the market but only 223 of them pay enough interest to negate the effects of tax and inflation.
The answer could be to look for a better current account. Ms Waycot said: “There is no magic cure for savers. We can’t make banks want our money, but they do want our current accounts, which is why many high-interest current accounts are offering very attractive interest rates on balances, and this is without insisting that you lock your money away for several years.
With current accounts from Nationwide and TSB offering interest of 5%, it means that just one regular-savings account can match them at the moment.
“It seems quite ludicrous that a current account is offering better rates than any of the 867 savings accounts, but it’s true,” said Ms Waycot.