Savers will lose £594 to inflation despite rate rise

All cash savers will have wealth eaten away by soaring prices.

Savers will see little benefit from the Bank of England's decision to raise interest rates as the spending power of their pots will fall by hundreds of pounds this year.

The Bank of England voted to raise rates today by 0.25 percentage points, to 1pc, in an attempt to tackle surging inflation.

Savings rates have started to slowly rise since the Bank initially began raising rates in December, but high inflation means savers will lose money in real terms.

If today's Bank Rate rise was passed on to savers in full, the average easy-access rate would climb from 0.39pc, according to analyst Moneyfacts, to 0.64pc, meaning savers with a pot of £10,000 would earn £64 in interest, £25 more than currently.

However, with inflation at its current rate of 7pc, rising prices would eat away £594 of the saver's purchasing power, effectively reducing the pot to £9,406.

The picture is even bleaker for many cash savers. Despite banks offering 0.39pc on easy-access deals, in reality millions of savers are earning just 0.12pc on average from high street banks and in some cases even lower.

For example, Barclays pays just 0.01pc to customers holding its easy-access account. A deposit of £10,000 in this account would earn £1 over a year and lose £653 to inflation.

Sarah Coles of stockbroker Hargreaves Lansdown said: "The blame lies with the high street giants, who have so much money sloshing around in their accounts that they don’t need to push up rates to attract more.

"This also means they can keep mortgage rates relatively low, and because their smaller competitors have to try to offer comparable mortgage rates, it has kept a lid on how much they could offer on their savings accounts too."

Ms Coles encouraged savers to look to smaller, lesser known banks which are protected by the Financial Services Compensation Scheme, the industry lifeboat scheme, but offer more competitive rates than high street providers.

Digital bank Chase, an arm of American banking giant JPMorgan, offers an easy-access deal with a rate of 1.5pc a year, far ahead of other leading easy-access accounts. However, it is restricted to people who already have a current account with the provider.

The best easy-access account that savers can open without a current account is from Zopa, which offers an annual rate of 1.2pc. Aldermore pays 1.25pc interest on its rival account, but this rate drops if more than two withdrawals are made in a year.

Investment Synergy - The real issue is; there are no returns for cash savers that favour "easy access" low/no risk returns, and the reality is.... nor has there been for quite awhile, now rising inflation has eroded even that tiny amount, the world of cash savings is in reverse !