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News & Community

Savers welcome inflation fall

Published:: 14 February 2012
Topic:: News,Money,Savings

Savers caught a break today as the Bank of England announced further falls in inflation, meaning greater returns on their cash.

The Consumer Price Index (CPI) measure of inflation fell sharply in January to 3.6% from 4.2% in December, marking the fourth consecutive month of declining inflation.

With the Retail Price Index (RPI) also dropping from 4.8% to 3.9%, it means basic rate taxpayers now need to earn 4.51% on their savings to beat both tax and inflation.

However, 40% taxpayers need to earn 6.01% on their savings to benefit, while higher rate taxpayers still need to earn as much as 7.21%.

As inflation continues to fall, MoneySupermarket research shows that around 20% of consumers are now likely to start saving as a result.

Following the most recent drops in CPI and RPI, there are now five fixed rate bond accounts on the market which beat inflation for basic rate taxpayers, and 69 that beat inflation for non-taxpayers.

In terms of fixed rate ISAs, 26 accounts now beat inflation - but there are no inflation-beating easy access Cash ISA accounts on the market at the moment.

Kevin Mountford, head of banking, at MoneySupermarket.com, said: "The continuing fall in inflation is great news for hard pressed savers, and this should really help encourage people to start saving again.

"High inflation combined with low interest rates has particularly impacted on UK savers who have found it very difficult to gain any real returns on their savings pots.

"With this fall in inflation, there will be some savings accounts which will now beat inflation, and consumers need to make sure they are on the best deals possible to maximise the returns. The top paying savings accounts currently offer rates over six times that of base rate so by choosing these, you can reduce the impact inflation has on your pot."

Inflation figures are getting closer to the Bank of England's target of 2% and January's figures reflect the fact that last year's rise in VAT is no longer being shown in the inflation figures.

Please note: Any rates or deals mentioned in this article were available at the time of writing.