SAVERS using high street banks are set to lose money over the next two years, as inflation continues to rise.
According to new research by peer-to-peer lender Octopus Choice, £10,000 saved in a high street bank today will be worth just £9,669 in real money after two years, if official inflation forecasts prove accurate.
In October, inflation reached a two-year high of 1.2 per cent, and the Bank of England has forecast that the Consumer Prices Index (CPI) will rise to 2.7 per cent over the next two years. Meanwhile, the base rate is set to stay at a record low 0.25 per cent, prompting high street banks to lower the interest rates on savings accounts across the board.
Octopus Choice has calculated that in order to break even, savers would need to keep their money in an account paying at least 2.44 per cent in interest. However, the average fixed term two-year savings account pays just 0.76 per cent — a 221 per cent shortfall.
“If the latest inflation forecast from the Bank of England proves accurate, high street savings will be decimated in the short to medium term,“ said Richard Wazacz, head of Octopus Choice. “For people to lose £331 on £10,000 in real terms after two years is a terrifying prospect. Conditions for savers have been brutal for some time, but in slashing their rates even further, as they have done recently, many high street banks have piled on the pain.
“The weakness of sterling is driving inflation up while continued economic uncertainty, both at home and overseas, means the Bank of England is unlikely to risk raising rates. The result is a perfect storm for savers. If people do start looking further afield for better returns, they need to beware the risks and, where necessary, seek independent financial advice.”