In October 2012 inflation, as measured by the CPI (Consumer Prices Index) index, rose from 2.2% to 2.7%. The increase was not anticipated by many and has therefore caused a mild kerfuffle, if you will, in financial circles, let alone to your average ordinary FundingKnight blog subscriber reading this now…
The reason behind the mild horror that has ensued as a result of the CPI announcement is due to the financial repercussions of said increased inflation on the economic health of UK savers.
So, for example if you, YES YOU, are a basic UK taxpayer, contributing 20% of your earnings to the lovely HMRC, you will now need to find a savings account that offers an interest rate of 3.37% (according to moneyfacts.co.uk) which, in this day and age of pretty pathetic savings options available on the high street, is nigh on impossible.
Well, I lie, it’s not wholly impossible but still fairly hard to achieve. Research offers the following statistics: 52 out of 2532 banks would be able to offer basic UK taxpayers an inflation beating savings account. That’s 2.1% of everything out there folk (State Bank of India anyone?) and that sounds to me like a fairly sad state of affairs for people looking for a sound return on their hard-earned cash stash.
Equally, if you are a higher rate taxpayer, lining the pockets of the taxman with 40% of your salary, then you would need to seek out a savings account that paid out nearly a whopping 4.5% interest rate in order to beat that darn inflation index and this is, in fact, actually impossible. At this time, as I type, there are no non-ISA accounts in existence that offer these rates.
A proper UK based savings sob story no? Well yes it really is, so here’s one final sum of misery from The Daily Telegraph money pages to send you on your way and then lets all go on a spending spree:
“The impact of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20pc, would have the spending power of just £8,899 today.”
Food for thought, for sure. I would love to hear your comments, suggestions or top tips.