25th Nov

A Case for Investing? Savers Squeezed as Only 30% of Accounts Beat Inflation

Only 30% of savers operate savings accounts that beat the current rate of inflation, according to a survey of over 2,000 people commissioned by lend-to-save firm RateSetter, which concluded that the vast majority of savers get negative returns from their savings accounts.

Savings losing value

The poll found that 83 per cent of respondents believe their personal finances are in check, but in reality their savings are losing value; hardly surprising given that only 227 out of 1,092 standard savings accounts currently ‘beat’ inflation.

Consumers apparently remain detached from the reality of their savings situation with 70 per cent of people either knowingly operating an account below inflation, or unsure what interest rate they were receiving. Only 12 per cent of people could successfully identify the current rate of inflation, while 23 per cent do not have a savings account at all.

The survey also found the ‘best and worst’ saving cities across the country. Cardiff was found to have the least ‘savvy’ savers, with only 20 per cent operating inflation beating accounts. Plymouth meanwhile was found to have the 'smartest' savers, with 43 per cent beating inflation.

Time to investigate?

Many people will be shocked when they realise how low the interest rate they receive has fallen to and experts advise savers that now is the time to investigate higher paying alternative savings options or risk seeing their nest egg being eroded by a combination of low interest and inflation.

Rate Setter CEO, Rhydian Lewis, commented ‘Banking has become so complex and such poor value that many savers have just given up and put their head in the sand. The emergence of radical new online models such as peer-to-peer lending is giving the more active saver a route to getting a decent return on their money.’

Lend-to-save firms such as RateSetter claim they can be the answer to low rates on traditional savings accounts. They take on savers' cash and lend it out to individuals or businesses. Clients opting for this method must be in possession of the full facts, and should treat this as an investment rather than a method of saving. The biggest issue in this regard is the fact that the lend-to-save industry is not covered by the Financial Services Compensation Scheme (FSCS), and therefore the investor does not enjoy the protection that the FSCS offers on qualifying savings accounts.

Bonds in a tax-wrapper

The FSCS gives protection of up to £85,000 if a bank or building society goes bust, and savers have no guarantee they will get their money invested back if borrowers default on lend-to-save loans or if the firms running them become insolvent.

Faced with such uncertainty, holding the recent crop of retail bonds in a tax-wrapper and with the protection of the FSCS may prove an attractive longer term investment strategy, particularly as some offer guarantees of over-inflation performance. For this reason, it is important to know the risks and only put money in as part of a balanced and diversified portfolio; always seek qualified financial advice if you have any doubt.

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