Savings accounts leave you worse off

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The Independent Online

Bates warned that basic-rate taxpayers with savings in accounts paying less than 2.75 per cent a year will lose money in real terms over the next 12 months. Higher-rate taxpayers need to earn at least 3.67 per cent on their savings in order to beat the effect of tax and inflation.

Even some non-taxpayers are losing out, because one in seven accounts pays less than 2.4 per cent a year, the rate needed to keep pace with inflation.

Paul Illott, a senior investment adviser at Bates, warned that savers had been hit hard by last month's reduction in the Bank of England's base rate. Savings rates have fallen in line with the cut, even though tax rates and inflation remained constant.

"Many savings accounts offer capital security in nominal terms only," Illott warned. "When the effects of tax and inflation are taken into account, most savers are still seeing the purchasing power of their capital being eroded."

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