Savers will lose £594 to inflation despite rate rise

Savers will see little benefit from the Bank of England’s decision to hike interest rates as the purchasing power of their pots will fall by hundreds of pounds this year.

The Bank of England today voted to hike interest rates by 0.25 percentage point to 1% to counter rising inflation.

Savings rates have been rising slowly since the bank first began raising rates in December, but high inflation means savers will lose money in real terms.

If today’s rate hike were passed on in full to savers, the average easy access rate would rise from 0.39 per cent to 0.64 per cent, according to analyst Moneyfacts, meaning savers with a £10,000 pot would earn £64 in interest 25 more than before.

However, with inflation currently at 7 per cent, rising prices would eat up £594 of the saver’s purchasing power, effectively reducing the pot to £9,406.

It looks even bleaker for many savers. In reality, although banks are offering 0.39 percent for easy-to-access stores, millions of savers are earning an average of just 0.12 percent from high-street banks, and in some cases even less.

For example, Barclays only pays 0.01 percent to customers who own its Easy Access account. A deposit of £10,000 into this account would make £1 over a year and lose £653 to inflation.

Sarah Coles of stockbroker Hargreaves Lansdown said: “The blame lies with the high street giants who have so much money in their accounts that they don’t have to raise interest rates to attract more.

“It also means they can keep mortgage rates relatively low, and because their smaller competitors have to try to offer comparable mortgage rates, this has put a cap on how much they could offer in their savings accounts as well.”

Ms Coles encouraged savers to turn to smaller, lesser-known banks, which are protected by the Financial Services Compensation Scheme, the industry’s lifeboat scheme, but offer more competitive rates than high street providers.

Digital bank Chase, a subsidiary of American banking giant JPMorgan, is offering an easy access deal at a rate of 1.5 percent per year, well ahead of other leading easy access accounts. However, it is limited to people who already have a checking account with the provider.

The best easy-access account for savers without a checking account is Zopa, which has an annual rate of 1.2 percent. Aldermore pays 1.25 percent interest on its competitor’s account, but that rate goes down if more than two withdrawals are made in a year. Savers will lose £594 to inflation despite rate rise

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