News keeps getting worse if you hope for a real return on savings

SAVERS are facing an uphill struggle to earn any money on their nest egg as inflation rose to 4.5 per cent in April.

The increase in the Consumer Prices Index means a basic-rate taxpayer now needs to earn interest of 5.63 per cent in order to make a real return on their money, once inflation and tax are taken into account.

Higher-rate taxpayers are in a worse position, needing returns of 7.5 per cent to stop the value of their deposits being eroded by inflation.

There are just two accounts available that enable people to make a real return, both of which are five-year fixed-rate ISAs, meaning savers have to lock away their money for a five-year term - while they can only invest a maximum of 5,340 in this tax year.

The impact of CPI inflation means 10,000 that was invested into a savings account paying an average return five years ago would have the buying power of only 9,481 today, assuming income tax of 20 per cent was paid on the interest.

The figures come days after National Savings and Investments announced it was relaunching its Inflation Beating Savings product, ten months after it withdrew it due to overwhelming demand.