Savers Pitted Against Inflation As 2.7% CPI to Squeeze Nest Eggs In Real Terms

Savers Pitted Against Inflation As 2.7% CPI to Squeeze Nest Eggs In Real Terms

Your well earned £10,000 saved in your basic high street account today, will be worth only £9835 in real terms, after 1 year at this rate of inflation. Even those with the top fixed-rate 1-year bonds, £9870 will be the worth of your £10,000. In terms of cash it will be worth only £9730 in real terms, a year on. This means investors will be expected to consider moving into other asset classes including property.   

Property investment marketplace Property Partner warned today, savers face a race against time, to find safe havens for their cash. A toxic combination of low interest rates and rising inflation, means that money saved in high street accounts is shrinking rapidly in real terms. 

CPI is rising above expectations this month to 2.7% and a deposit of £1000 in some of the high street’s highest-yielding easy access accounts will be worth just £984 in real terms a year on.

The high street’s top five easy access savings accounts currently offer average interest of 1.05% AER. At that rate, savings of £5,000 will be worth just £4,918 in real terms in 12 months’ time while £10,000 will be worth only £9,835 in today’s money. Value erosion is a threat that is likely to force many to consider other areas where they can invest their money.

In some areas, buy-to-let investors are investing in homes yielding in excess of 5%. The average yield available on Property Partner is currently 3.2% with yields of up to 4.99% with potential gains in case property prices rise. In order to protect the value of their capital, investors will now need to assess the level of risk that they’re comfortable with. Savers using the top fixed one-year bonds, will be sitting on a shrinking nest egg.  Sums of £1,000, £5,000 and £10,000 would become £987, £4,935 and £9,870 respectively in real terms in a year. The top five one-year fixed bonds pay an average 1.4% AER.

Table: Value of £1k, £5k, £10k high street easy access savings in actual and real terms after one year

Amount Invested Top Easy Access Rates Actual Value After One Year Real Terms Value After One Year
£1,000 1.05% £1,011 £984
£5,000 1.05% £5,053 £4,918
£10,000 1.05% £10,105 £9,835

*Based on rates from RCI Bank, Tesco, Bank of Cyprus, Leeds Buildings Society and Post Office Money (collated 17/05/17 from MoneySupermarket), using CPI inflation of 2.7%.

Table: Value of £1k, £5k, £10k fixed 1-year savings bonds in actual and real terms after one year.

Amount Invested Top 1-year Fixed Savings Bonds Actual Value After One Year Real Terms Value After One Year
£1,000 1.4% £1,014 £987
£5,000 1.4% £5,070 £4,935
£10,000 1.4% £10,140 £9,870

*Based on rates from Aldermore, Hampshire Trust Bank, Zenith, RCI Bank and Vanquis (collated 17/05/17 from MoneySupermarket), using CPI inflation of 2.7%.

Dan Gandesha, founder of property investment marketplace Property Partner, said: “Interest rates are still near historic lows and right now we expect investors to be grappling with the difficult decision over where to keep their money.

“They need to protect it from inflation which has risen faster than anyone expected so it’s a race against time to find a return on investment at a risk level they feel comfortable with.

“Bricks and mortar has a reputation for reliability over the long term and we expect many to be looking at this asset class as property in some areas continues to offer yields which will allow investors to beat inflation even after running costs and taxes.”

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