Whilst the Bank of England’s low interest rates are benefiting those with variable rate loans and mortgages, savers are losing out massively. New research has shown that eight in ten savings accounts are effectively losing money.

Some savings accounts have been given rates as low as 0.05 percent. To put that into perspective, a basic rate tax payer with £5,000 in an account with this interest rate would receive £2 a year after tax; for a higher-rate tax payer, this equates to just £1.50 a year after tax. The low rates mean that savings rates are lower than the rate of inflation – September’s inflation rate was 1.1 percent, October is 1.5 percent – thus savers are losing money in real terms.

Any higher rate tax payer who has money in an account paying less than 2.5 percent interest is actually losing money.According to Moneynet, over 90 percent of savings accounts are paying less this thus most higher-rate savers are losing money.

For basic rate tax payers, interest rates have to be over 1.875 percent to beat inflation. 80 percent of savings accounts pay less than this, thus most basic rate savers will also be
losing money.

For people such as pensioners who rely on the interest on their savings accounts to help them pay bills, the effects are devastating. The poor rates are also deterring potential new savers from opening accounts.

Popularity: 1% [?]