Inflation means savers ‘may have lost as much as £113bn over past year in real terms’

Although interest rates have increased, savers have still lost money in real terms due to high inflation, AJ Bell said.

Vicky Shaw
Wednesday 19 July 2023 17:23 BST
Savers have been ‘pummelled’ by high inflation and lower returns on savings, AJ Bell said (PA)
Savers have been ‘pummelled’ by high inflation and lower returns on savings, AJ Bell said (PA)

As much as £113bn could have been wiped off the value of the nation’s savings over the past year in real terms, analysis suggests.

The analysis by investment platform AJ Bell was released after Office for National Statistics (ONS) said the Consumer Prices Index (CPI) eased to 7.9 per cent last month, down from 8.7 per cent in May and its lowest rate since March 2022.

Laura Suter, head of personal finance at AJ Bell, said: “Even though inflation has fallen today, savers are still being pummelled by high inflation and lower returns on savings.

“Although interest rates have risen considerably over the past year and a half, savers still lost money in real terms thanks to double-digit inflation for much of that period.

“Over the past year the average saver with £1,000 in an easy-access account will find it’s now worth £938 in real terms, having got an average of 1.18 per cent interest over that period. The top-rate easy-access accounts would have paid more over that time, but nowhere near current inflation of 7.9 per cent.

“Based on the £1.81 trillion that Brits have in savings accounts, it means the nation’s savings could have collectively lost as much as £113bn over the past year in real terms, based on current inflation and assuming savings were earning the average easy-access rate.

“Although some of that money will have been in fixed-rate accounts earning higher interest, a large proportion will also have been in accounts earning zero or minimal interest.

“We know that £250bn of savers’ money is sitting in accounts earning no interest, with that money alone losing £18bn in real terms.”

Savings providers have been coming under pressure to pass on interest rate rises more quickly to savers, following concerns that borrowing rates were being hiked faster than savings rates.

A new consumer duty will come into force from 31 July, forcing financial firms to put customers at the heart of what they do.

In a recent letter to the Treasury Committee, Financial Conduct Authority (FCA) chief executive Nikhil Rathi said: “We welcome that many firms have acted in advance of the consumer duty to simplify their product ranges and equalise rates between on and off-sale savings accounts.

“We will monitor firms’ actions to comply with the duty and take appropriate steps, including enforcement action if appropriate, if we find they are consistently not providing good outcomes for their customers.”

Top rates across the savings spectrum have improved since the last inflation announcement

Rachel Springall, Moneyfactscompare.co.uk

Rachel Springall, a finance expert at Moneyfactscompare.co.uk, said there is not one standard cash savings account on the website’s records that can outpace inflation at 7.9 per cent.

But she added that the impacts of inflation should not discourage savers from searching for and switching to a better deal.

She said: “Top rates across the savings spectrum have improved since the last inflation announcement and more improvements may well surface in the coming weeks.”

Ms Springall said several providers now offer 6 per cent to savers who are prepared to lock their money away in a bond for at least one year.

“Those savers who have a maturing one-year fixed bond may well realise the rates are more than double the top rates offered a year ago,” she said.

“This area of the market is brimming with challenger banks, and they traditionally move quickly to attract deposits to fund their future lending.”

She said some top easy-access deals now pay more than 4 per cent.

Ms Springall added: “Savers will need to consider both their short-term needs and long-term goals when comparing the variety of accounts on the market.”

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