Savers hit by rising inflation

The rise in inflation means that savers have to place their cash in better accounts to make a return. People who rely on their savings will be most affected by the rise in inflation. The value of savings may be eroded further following the rise in the Consumer Prices Index to 4.1% in January. Financial website Moneyfacts.co.uk said that the current average rate on a savings account is 0.83%. Basic rate taxpayers who continue to keep their cash in low return accounts could see the value of their money eroded by 3.34% a year. A basic rate taxpayer needs to place their savings in an account paying at least 5% in order to make a return. Higher rate tax payers are worse off as they need to locate an account with an interest rate of 6.67% to ensure that the value of their savings does not fall after tax and inflation figures are taken into account.

BBA says current accounts not designed to be used for savings

People should put their money in a savings account to generate a more attractive return instead of keeping it in a current account, the British Bankers' Association (BBA) has urged. The association was responding to research by Moneyfacts, which showed that current account interest rates have dropped considerably with over half of the accounts available to consumers paying out no interest at all. A BBA representative said: "Current accounts are not, and never have been, intended for people's savings although many accounts do attract a small amount of interest. They are exactly what they claim to be, an account from which everyday transactions – such as direct debits and ATM withdrawals – are managed".