Savers have been warned that their cash may be quietly losing value in real terms due to inflation outpacing savings rates, with some potentially losing around 19p per £1 saved since 2020, according to analysis by Moneyfacts.
Real-Terms Losses Mount
Even those who placed their money into the most competitive cash savings deals may have seen the real value of their pots decrease, the research found. Based on average easy-access accounts, savers may have lost approximately 19p per £1 saved. Even with top-paying easy-access accounts, the loss could be around 5p per £1 saved. However, money held in the best one-year fixed-rate accounts could have left savers around 1p per £1 better off, beating inflation.
Rising Inflation Risks
The conflict in the Middle East has raised concerns about inflation risks and household bills in the coming months, making it even more crucial for savers to shop around for the best deals. Adam French, head of consumer finance at Moneyfacts, said: "Many savers have already lost up to 19p per £1 saved in real terms since 2020 as rising costs have consistently run ahead of the rates paid on cash savings. And now another financial storm is coming with inflation forecast to spike again."
French added: "Rates were too low for too long in the 2010s and then slow to catch up with the inflation shock of the 2020s. The result is that many cash savers were left materially worse off." He described the situation as a "leaking bucket" that undermines household financial confidence.
Four Tips for Savers
Moneyfacts offers the following advice to help savers protect their cash:
- Bag best rates, not average ones: There is a big gap between average and "best buy" accounts. Switching from an average easy-access deal to a top-rate product can materially reduce erosion. Consider regularly reviewing your account.
- Blend easy access with fixed-rate accounts: If you have a healthy nest egg, split your cash by keeping an emergency fund in an easy-access account while locking another portion into a competitive fixed or notice account to improve overall returns.
- Make the most of the ISA tax wrapper: Shielding interest from tax helps maximise net returns. Even small tax savings can narrow the real-terms loss.
- Consider other options: Investing in a stocks and shares ISA could be an option, depending on risk tolerance and financial plans. Remember that investments can go down as well as up.
