Savers to lose £26.5bn to inflation despite rate rise

UK savers could lose £26.5bn over the next year, despite the recent interest rate rise, as inflation erodes capital in low-interest savings accounts, according to peer-to-peer lending platform Lendy.

Related topics:  Savings & Investments   |   Rozi Jones
20th November 2017
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"Savers need a Plan B to beat inflation, looking at alternative ways to retain and grow the value of their capital."

This is more than six times higher than the £4.1bn savers were losing per year through inflation just two years ago.

Lendy says that the average interest rate on zero and low-interest bank accounts is now 0.77% – including allowing for a 0.25% increase in line with the Bank of England’s recently raised base rate. This is down from an average of 0.9% two years ago.

This gives savers just £10.06bn in interest on the £1.3tn they have stuck in bank accounts and ISAs. £187.1bn of savings is held in bank accounts that generate no interest at all.

The modest interest these accounts earn is dwarfed by the £36.6bn savers are losing to inflation, which is currently 2.8% compared to 1.24% at the end of 2015.

Liam Brooke, Co-Founder of Lendy, commented: “The amount savers are losing is staggering, even when the impact of the recent interest rate rise is taken into account. Savers may well not feel the effects of this directly, with many banks unlikely to pass the interest rate rise on in its entirety. Savers need a Plan B to beat inflation, looking at alternative ways to retain and grow the value of their capital.

“Clearly P2P investments are in a different league to savings – with a very different risk/return profile. However, even allocating just a relatively small proportion of a portfolio to such potentially high-yielding investments could act as a buffer against inflation erosion, provide all-important diversification and help drive returns.”

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