Inflation figures released today showed that the Consumer Prices Index fell from 0.5% to 0.3% during January – the lowest ever since it was first recorded.
According to Moneyfacts.co.uk, to beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 0.38% per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 0.50%.
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 £8,769 today – a fall of 12.31%.
{desktop}{/desktop}{mobile}{/mobile}
Sylvia Waycot, editor at Moneyfacts.co.uk, said: "Inflation has hit a new low, and although this helps today's savings interest go further, it still won't get you a sausage.
"It's official, after tax and inflation, the average interest paid on easy access savings accounts, which is currently 0.66%, isn't even enough to buy you one sausage a week."
She explained that the average easy access account pays 0.66% on £5,000 –equating to £26.40 before inflation when the basic rate tax of £6.60 is deducted.
This amount is not enough to afford the sausages in question, used by Moneyfacts in this example. They cost £3.49 for six, working out as 58p for one sausage, which when multiplied by 52 weeks requires spendable interest of £30.16.
Ms Waycot: "Any saver who deposited £10,000 in an average account five years ago will find that while they still physically have £10,000, it is worth much less today. Over 60 months the loss equates to around £20 per month, leaving you with £1,200 less bang for your buck.
"There are a total of 558 savings accounts (218 fixed bonds, 55 notice, 98 no notice and 187 ISAs) to choose from that pay enough interest to negate the effects of tax and inflation."
Moneyfacts said there were 371 non-ISA accounts that basic rate taxpayers can choose to negate the effects of tax and inflation out of the 629 in the market today.
Moneyfacts said ISAs present a slightly more positive picture for savers, with 187 out of 213 offering rates that beat inflation.
However, Ms Waycot said: "The average interest paid across the ISA range is still miserable at 1.44%, even less than last year when it was 1.65%."