GET READY TO TIGHTEN YOUR BELTS.

Taken from todays Telegraph -

Savings accounts will become 'obsolete'

Savings accounts will become “totally obsolete” if inflation rises next week, experts have warned.

Latest figures suggested that not a single saver in Briton would make a real return on their cash if the cost of living continues to rise.

Historically low interest rates and the government’s preferred measure of inflation, the Consumer Prices Index, at 3.2 per cent means savers are already struggling to get an income.

There are currently no accounts available to higher rate taxpayers that provide a real rate of return after tax and inflation, and just a handful available to basic rate taxpayers. But even these could be nudged off the savings landscape, financial experts warned.

They suggested that if CPI rises to above 3.8 per cent, there will be no
point any taxpayer using a savings account to produce an income.



In this situation, savers would actually end up losing money and could end up being more than £300 out of pocket in a year on a £10,000 investment.

Darren Cook, of personal finance website Moneyfacts, said: “If inflation rises to 3.8 per cent, all savings accounts will effectively be totally obsolete.

“Savers have to fight hard to get within an arms length just to break even and avoid losing money.”

And Andrew Hagger, of personal finance website Moneynet, said: "Savers are nearing their wits end, and more and more people are going to be giving up the savings habit."

There are currently no accounts for higher rate taxpayers and there are just 34 accounts – nearly all are fixed rate bonds which require savers to lock in their money for three years or more – for basic rate taxpayers. It equates to just 0.2 per cent of the savings market.

At 3.8 per cent, higher rate tax payers would need to find an account paying 6.33 per cent to avoid losing money once inflation is taken into account and basic rate taxpayers would need to achieve 4.75 per cent.

The real return for a basic rate taxpayer once inflation is taken into account on an average no notice account is currently minus 3.21 per cent, meaning they would actually lose the equivalent of £321 if they invested £10,000 over a year if CPI reached 3.8 per cent.

Economists expect inflation to climb higher in the coming months.

Petrol prices could pass £1.20 a litre by the August bank holiday weekend, close to an all-time high.

And the price of a loaf of bread is expected to rise by 10p to 129p, which would be a record. Russia suffered from its hottest summer in a century, wiping out much of the world’s wheat harvest.

Motorists and retailers will also be hit when Value Added Tax rises by 2.5 per cent to 20 per cent in January.

Things are going to get difficult for EVERYONE to say the least.