Inflation defeats all savings accounts

Savers were branded the "innocent victims" of government interest rate policy yesterday after inflation rose for the fifth successive month.

The consumer prices index (CPI) measure of inflation climbed from to 4.4 per cent in February, from 4 per cent in January, according to the Office for National Statistics. The retail prices index (RPI) measure - which includes mortgage payments - hit 5.5 per cent, the highest level for 20 years, as fuel, food and clothing costs soared.

The latest increase means it is now impossible to get a return on a conventional savings account that protects against inflation, even though banks and building societies are paying returns at record margins above the Bank of England base rate - which stands at 0.5 per cent. The average rate on the top five easy access accounts is currently at a 16-month high of 2.87 per cent, according to Moneysupermarket. The best easy access account - the MySave Online Plus from Nationwide - pays 3.05 per cent, with several others around the 3 per cent mark.

But inflation at 4.4 per cent means there are no easy access savings accounts or cash individual savings accounts (Isas) paying enough to negate inflation. All of the 334 easy access products on the market expose savers to inflation risk - their capital loses value as prices rise.

Basic rate taxpayers, who need an account paying at least 5.51 per cent to beat the combined effects of tax and inflation, have only eight savings products from which to choose, down from 118 just six months ago. All eight are fixed-rate, tax-free Isas requiring the money to be locked away for at least three years, according to Moneyfacts.

There are no savings products paying the 7.34 per cent needed by higher rate taxpayers to outstrip inflation and tax.

Sylvia Waycot, spokeswoman for Moneyfacts, said: "People trying to save a deposit for a first home will see inflation eating into their hard-earned savings faster than it grows unless they seek out the few accounts that can keep pace with inflation."

The situation is particularly bleak for elderly savers, according to the monthly inflation study by Alliance Trust. It said the 50-64 and 65-74 age groups face an effective inflation rate of 5.2 per cent. The inflation rate facing over-75s is now 4.9 per cent, the highest level in two years, because of the weighting of higher food and energy costs in their outgoings.

Dr Ros Altmann, director general of Saga, called for a rise in interest rates to help older savers, which she described as "innocent victims" of monetary policy.

"This is a disgrace - yet another hammer blow for savers as inflation continues to erode their income," Altmann said. "And it is those approaching retirement who are the worst affected - the very group who need to save most.The government should bring back the inflation-linked National Savings certificates which were recklessly withdrawn last year."