Personal Finance and May CPI

18th June 2014

Inflation figures released today show the Consumer Prices Index (CPI) fell from 1.8% to 1.5% during May.

To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 1.88% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 2.50%.

Of the 619 non-ISA accounts in the market today, there are 72 that taxpayers can choose to negate the effects of tax and inflation.

ISAs, however, present a slightly better story with 115 out of 215 ISAs offering rates that beat 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 £8,715 today - a fall of 12.85%.

Sylvia Waycot , Editor at Moneyfacts.co.uk, said:

"The Bank of England underperformed its 2% target for inflation this month, which should make it easier to find savings accounts that outperform CPI and the taxman.

"Of course, it will come as no surprise that even with the low inflation rate of 1.5%, finding such an account is far from easy.

"Today there are a total of 834 savings accounts on the market, but only 187 (72 fixed bond and 115 ISAs) accounts that pay enough interest to negate the effects of tax and inflation*.

“Today, the average easy access account pays 0.63% as opposed to 0.71% last year.

“Settling for a fixed bond today will give you a much lower return of interest compared to this time last year when the average two-year fixed rate bond paid 1.93%, compared to 1.73% today.

“The average interest paid across the ISA range is just 1.58% and a year ago it was 1.74%.

“The imminent arrival of the super ISA means that we will all be able to legally stash more money away from the taxman this July, but the euphoria will be short lived if the accounts pay so little the taxman hardly notices."

This article and much more information can be sourced at http://moneyfacts.co.uk/
moneyfacts.co.uk/