News Article

Bank accounts: interest vs. inflation

Published 15 August 2012 by

Finding a bank account that pays enough interest isn't easy - if 'enough' means enough to counter the effects of tax and inflation.

The latest figures from the Office for National Statistics (ONS) show that CPI inflation jumped up to 2.6% in July, up from 2.4% in June.

'The largest upward pressures on the change in the CPI rate,' the ONS website tells us, 'came from transport (particularly air fares) and clothing & footwear.'

When you have money in a bank account, it's nice to think of it as growing - but today's low interest rates and high inflation make that difficult. As Moneyfacts.co.uk points out, a basic rate taxpayer would need to find a savings account that pays 3.25% interest per year.

Of the 1,092 savings accounts currently available, however, only 227 do this (3 notice accounts, 96 fixed and 128 ISAs). There's not a single no-notice account that beats inflation today.

As The Telegraph points out: "The effects of inflation mean that £10,000 invested five years ago would have the spending power of just £9,243 today, assuming average interest and tax at 20pc."

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