18, July, 2022, LONDON –
A combination of rising inflation and low interest rates on savings accounts over the past 5 years means the average saver will have effectively lost over £1,000 since 2017.
The new research, from the personal finance comparison site finder.com, found that, at the halfway point of 2022, easy-access savings rates have lost 13.5% of their value vs inflation since 2017. So, with the average UK resident currently having around £7,500 in savings, this means savers’ money will be worth over £1k less in real terms than 5 years ago.
Despite savings accounts earning interest and making money for savers, the fact that inflation has outstripped the average savings rate for each of the past 5 years means that consumers’ money is worth less than it was.
It is 2022 where accounts are being particularly badly hit. This is due to a rampant inflation rate of 9.1% versus the average easy-access savings rate of just 0.59%. If this were to continue for the rest of the year, the average saver would effectively lose 8.5%, or £639, in 2022 alone.
Go back 10 years and the picture doesn’t improve much either. Someone who saved £7.5k in 2012 would currently have lost around £950 in real terms, or 12.6% of their savings value.
Unfortunately for the public, inflation rates are expected to rise again by the end of the year to 11%, despite currently being at its highest rate since 1981. If this happens and savings interest rates stayed the same, it would mean savings accounts would effectively lose 10.5%, or £789, in value each year.
Average interest rates on savings accounts peaked at 13.56% in 1990, and have steadily decreased since. The lowest average interest rate recorded in the past 35 years was in 2021 at 0.35%, which is a 97% decrease from 1990. Whilst interest rates have increased again since 2021, with some savings accounts offering interest up to 3.5%, this is still significantly below inflation.
To see the research in full visit: https://www.finder.com/uk/inflation-vs-savings
Commenting on the findings, Michelle Stevens, banking expert at finder.com, said:
“The fact that savings accounts are currently losing people a lot of money in real terms is yet another worrying outcome from the cost of living crisis. They are still a prudent choice for many consumers given the security they offer and the fact that they do still earn you interest, however it may not be a sustainable option for many if inflation doesn’t start to come down soon.
“However, a bear market – that many predict will get worse – isn’t inspiring confidence in choices like investing or cryptocurrency either. The potential to get inflation-beating returns also comes with the possibility of losing some or all of your money.
“One option to protect your money, for those under 40, is to get an ISA. A Lifetime ISA offers a guaranteed 25% return (up to £1,000 per year) but it must only be used to buy a first property or taken out after reaching 60 or you will forfeit the interest on the account.
“Also, putting more into your pension pot could be another option as you get employer contributions and tax relief from the government.”
Finder’s analysts sourced the historical inflation rates from World Data and compared with historical average savings accounts interest rates from Swanlow Park.
The average savings amounts in the UK was sourced via a nationally representative survey commissioned by finder.com and carried out by Censuswide.
The annual difference between inflation and average interest rates were then applied to this amount over a period of 1, 5 and 10 years.
The information in this release is accurate as of the date published, but rates, fees and other product features may have changed. Please see updated product information on finder.com's review pages for the current correct values.
finder.com is a personal finance website, which helps consumers compare products online so they can make better informed decisions. Consumers can visit the website to compare utilities, mortgages, credit cards, insurance products, shopping voucher codes, and so much more before choosing the option that best suits their needs.
Best of all, finder.com is completely free to use. We’re not a bank or insurer, nor are we owned by one, and we are not a product issuer or a credit provider. We’re not affiliated with any one institution or outlet, so it’s genuine advice from a team of experts who care about helping you find better.
finder.com launched in the UK in February 2017 and is privately owned and self-funded by two Australian entrepreneurs – Fred Schebesta and Frank Restuccia – who successfully grew finder.com.au to be Australia's most visited personal finance website (Source: Experian Hitwise).