Savings Accounts Lose 11% of Value Over Past Five Years Due to Inflation

Strategic Insights -

Savings accounts in the UK have lost an average of 11p off the value of every £1 left in them over the past five years due to high inflation and low interest rates. According to data from Moneyfacts, the average savings pot has lost 11% of its value, with the firm calling for the Bank of England to keep its base rate at 2 percentage points above the rate of inflation to prevent savers' money from being eroded by inflation.

Key Takeaways:

  • The average savings pot has lost 11% of its value over the past five years due to high inflation and low interest rates.
  • Moneyfacts has calculated that the average annual consumer prices index (CPI) measure of inflation has ranged from 0.9% in 2020 to 9.1% in 2022, while average savings rates ranged from 0.5% in 2021 to 3.86% last year.
  • £1 saved in 2020 that earned the average savings rate would now be worth 89p in real terms after inflation.
  • Moneyfacts has argued that the Bank of England's base rate should be set at about 2 percentage points above the CPI measure of inflation to prevent savers' money from being eroded by inflation.
  • The big high street banks - Barclays, HSBC, Lloyds, and NatWest - have been criticized for failing to pass on higher interest rates to savers and paying 2% or less on easy-access savings accounts when Bank rate was at its peak.
  • Savers can earn higher interest rates by shopping around for savings accounts, with some providers offering rates as high as 5% on easy-access accounts.

Statistics:

  • Average savings account has lost 11p off the value of every £1 left in it over the past five years.
  • Average annual CPI measure of inflation has ranged from 0.9% in 2020 to 9.1% in 2022.
  • Average savings rate has ranged from 0.5% in 2021 to 3.86% last year.
  • £1 saved in 2020 that earned the average savings rate would now be worth 89p in real terms after inflation.
  • Bank rate was at historic lows from 2009 for more than a decade, meaning that savers earned very low interest rates but borrowers benefited from low mortgage rates.
  • Bank rate has been cut four times to 4.25% over the past year and is forecast to gradually fall to about 3.5% by next year.
  • CPI inflation for the past year was 3.6%.

Sources:

  • Moneyfacts
  • Bank of England
  • Institute of Economic Affairs
  • Positive Money
  • The Private Office
  • Chancellor Rachel Reeves