Stay up to date with notifications from The Independent

Notifications can be managed in browser preferences.

Average UK saver loses £500 in real terms as inflation eclipses interest rates

Economists have warned that interest rates may not be raised for some time as Brexit uncertainty continues

 

Caitlin Morrison
Wednesday 16 January 2019 17:42 GMT
Comments
Bank of England announces rise in interest rates

The average UK saver who kept their money in easy access bank accounts lost almost £500 in real terms last year because inflation has continued to outstrip interest rates, according to new research.

Despite the fact that inflation fell to a two-year low of 2.1 per cent in December, this is much higher than the Bank of England’s base interest rate of 0.75 per cent. Most banks fail to match the central bank’s rate with their easy access savings accounts, which offered an average of 0.23 per cent in 2018, according to figures compiled by Gatehouse Bank.

The research shows that savers relying on easy access accounts would have suffered a real terms loss of £19 on deposits of £1,000, £37 on savings of £2,000, £94 on a lump sum of £5,000 and £468 on £25,000.

Based on an average nest egg of £26,403, using the most recent figures from Sun Life, inflation would have led to a loss of £494.

Charles Haresnape, CEO of Gatehouse Bank, said: “Savings rates are slowly creeping up but inflation is still taking a huge bite out of savings held in easy access accounts. Millions of savers will undoubtedly have found that in 2018 they received a substantial negative ‘real’ return on their hard-earned savings, when the impact of inflation is taken in to account.

Savers keeping their money in cash would have lost out to an greater degree - the average nest egg would have lost £554.

“Those looking to drive a real increase in their savings need to be on the front foot in looking for better returns to prevent their nest eggs from shrinking. Many instant access savings rates are still at rock bottom and no one can afford to leave a significant amount of cash lying around for inflation to swoop on.

“There are many more accounts savers should consider, from fixed-term to notice accounts, which offer greater returns and won’t leave them as vulnerable to the impact of inflation, like easy access rates.”

Meanwhile, savers were dealt a double blow as analysts said the latest inflation data indicated the BoE could take its time over raising interest rates.

Support free-thinking journalism and attend Independent events

““With inflation within a whisker of its 2 per cent target, the [Bank of England’s Monetary Policy Committee] will probably feel comfortable in waiting until Brexit uncertainty is resolved before moving again,” said Ruth Gregory of Capital Economics.

Meanwhile, Howard Archer of the EY Item Club said: “We would not rule out two interest rate hikes in 2019 but we believe one is more likely as significant uncertainties persist – with expected lower inflation easing pressure for more aggressive Bank of England action.”

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in