According to data provider Moneyfacts, to beat inflation a basic rate taxpayer at 20% needs to find a savings account paying 2.25% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 3%.
Of the 617 non-Isa accounts in the market today, there are only 37 that taxpayers can choose to beat the effects of tax and inflation, says Moneyfacts. Isas present a slightly better story with 57 out of 213 Isa 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 £8,716 today – a fall of 12.84%.
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Sylvia Waycot, editor at Moneyfacts.co.uk, said: "It is a surprising turn that inflation has now increased after several months of falls. This will affect choice for savers as it will restrict the number of accounts that now beat inflation.
"Today there are a total of 830 savings accounts on the market, but only 94 (37 fixed bond and 57 Isas) accounts that pay enough interest to negate the effects of tax and inflation.
Not only have interest rates fallen but the choice for savers has also shrunk, falling from 861 a year ago to 830 today, with less than 100 accounts that beat or match inflation.
"You can boost your easy access savings with a best buy Isa paying 2%, however, with an equivalent taxable account the best you can achieve is 1.5%."