17 February 2011

Current Levels of Inflation Result In Savers Losing Money

Official data can be misleading. It is true that the Consumer Price Index has risen to 4.0% this January, and this does not sound disastrous. Take for example, someone paying the basic tax rate with £10,000 deposited in an instant access savings account paying 0.67% interest. He or she earns £53.60 a year: So far so good. However, the saver in fact loses around £400 a year due to inflation.

It is possible to find higher rates of interest than 0.67% but these rates are not increasing at nearly the same rate as inflation. Savers may be relieved by the fact that growing inflation will force the Bank of England to raise interest rates but question is always, when?

Current economic trends hit the elderly hardest. Most pensioners live off a combination of fixed incomes supplemented by savings which are undermined by high inflation and low interest rates.

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