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13 Feb 2013

Slight Rise In Number Of Inflation-Beating ISAs

Five cash individual savings accounts (ISAs) now negate the impact of inflation, up from just two in January, data provider Moneyfacts estimated on Tuesday after the latest inflation data was released.

According to the Office for National Statistics, the consumer price index (CPI) was flat at 2.7% in January.

In spite of the rise in inflation-beating ISAs from last month, their number remains way below the 33 cash ISAs that negated inflation a year ago, when the CPI stood at 3.6%.

With inflation unchanged at the current level for four months in a row, basic-rate taxpayers now need to find a savings account paying 3.37% a year in order to beat inflation, while higher rate taxpayers, who pay a 40% tax rate, need an account with an annual return of 4.5%.

Apart from the five ISA accounts, none of the 874 standard savings accounts currently on the market beat inflation, Moneyfacts´ research showed. Back in September, with the CPI at 2.2%, there were 266 savings accounts that negated inflation. The interest rate of the average easy access account is now 0.82%, compared with 0.92% a year ago.

According to Moneyfacts, £10,000 invested five years ago at an average interest rate and a tax rate of 20% would now have the spending power of just £9,022 as a result of being eroded by inflation.

The news is a real blow for people in retirement because for them savings are an additional stream of income supplementing their pension, Rachel Springnall of Moneyfacts said.

Copyright © M2 Bespoke 2013

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