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Savers left high and dry

Tuesday 12th November 2013

The latest inflation figures show the Consumer Prices Index (CPI) fell from 2.7% to 2.2% during October, illustrating just why so many people are now turning to property to augment their income.
 
Buy-to-let lending totalled £5.7 billion during the third quarter of this year, which was up 19% on the previous quarter and 43% up compared to the same period last year, according to the latest data from the Council of Mortgage Lenders.
 
The rise in buy-to-let in the third quarter of 2013 was driven by both buy-to-let house purchase and buy-to-let remortgage. Buy-to-let house purchase lending rose in the third quarter to 22,790 loans advanced compared to 19,410 in the second quarter of 2013. This was also a 29% annual rise on the third quarter of 2012.
 
Buy-to-let remortgage lending also increased in the third quarter, up 15% on the second quarter of 2013 and up 42% on the third quarter of 2012. The value of these loans also increased in September to £2.9 billion, up 19% on the second quarter of 2013 and up 53% in value compared to the third quarter of 2012.
 
Sylvia Waycot of Moneyfacts.co.uk said: “Renting a property has become the only option for many people, even those that aspire to owning their own home given the difficulties faced by first-time buyers, so the fortunes of the buy-to-let market are also vital to the housing economy.”
 
To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 2.75% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 3.66%.
 
Of the 877 ISA and non-ISA accounts in the market today, there are 45 savings accounts that taxpayers can choose to negate the effects of tax and inflation.
 
The effect of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20%, would have the spending power of just £8,836 today – a fall of 11.64%.
 
Waycot commented: “The cost of living may be falling but this has done nothing to aid the untold anguish felt by the nation’s savers who have witnessed the average interest paid on no-notice accounts fall by 0.37% in the last 12 months.
 
“Bearing in mind that the average no-notice savings account only pays a miserable 0.67% [or a £67 return based on a £10,000 investment in one year], savers have no hope of achieving the 2.75% needed just to counter the effects of inflation and pay the taxman’s share without locking money away which goes. 
 
“Today there are 877 savings accounts on the market but only 45 [20 fixed bond and 25 ISAs] accounts that negate the effects of tax and inflation.
 
“The average interest paid across the ISA range is just 1.68% and a year ago it was 2.18%.
 
“The increase in accounts that beat tax and inflation is not due to a sudden increase in competitiveness but merely a result of the larger than average fall in CPI.
 
“What savers want is the return of real competition in the savings market and some realistic rates on offer.”
              

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