Savers across the UK are being warned that their cash balances are being steadily eroded in real terms, as interest rates offered by major high street banks continue to fall significantly behind the rate of inflation.
Bank rates lagging behind rising prices
Financial analysis reveals a stark gap between the returns on popular savings products and the Consumer Prices Index (CPI). Data shows that Barclays' easy-access saver and cash ISA rates stand at just 1.06%, while Lloyds and Halifax offer 1%. HSBC's equivalent rates are 1.15% and 2.5% respectively. For NatWest and Santander customers, the interest rates are 1.06%, 1.15%, and 2%.
These figures are all substantially below the current inflation rate, meaning the purchasing power of money held in these accounts is diminishing over time.
Experts urge a shift towards investing
Wander Rutgers, the CEO of investment platform Lightyear, issued a clear warning following the latest CPI data. He stated that millions are losing out in real terms by keeping savings in cash or low-performing cash ISAs.
"Whether it’s Barclays, Lloyds, or HSBC, the major high-street banks are offering interest rates well below the rate of inflation," Mr Rutgers said. "People saving their pennies up for Christmas in cash products are seeing their spending power steadily eroded. Cash alone is therefore a losing strategy for those looking to build their wealth meaningfully."
He advised that to be financially smart heading into the New Year, people should consider investing in stocks and shares to have a fighting chance of outpacing inflation and meeting long-term goals.
The double threat of inflation and fiscal drag
Kevin Brown, a savings expert at Scottish Friendly, echoed the sentiment, noting that the best savings rates may not last and that acting now could be crucial. "For those looking to improve their chances of outpacing inflation, investing remains the more effective option to provide the potential for greater returns over the long term," he shared.
Caitlyn Eastell, a spokesperson for Moneyfactscompare, highlighted an additional financial pressure. She pointed out that the ongoing freeze on income tax thresholds could drag millions into higher tax brackets. This move would halve the personal savings allowance from £1,000 to £500 for basic-rate taxpayers, potentially resulting in surprise tax bills on savings interest.
"Inflation remains one of the biggest threats, however, fiscal drag also plays a major role," Eastell said. She added a note on tax-efficient saving: "Although the interest rates offered on cash ISAs are typically lower than their non-ISA counterparts, they may be more favourable in the long run as all interest earned is tax-free."
The underlying message from financial observers is clear: with the FTSE 100 having outperformed CPI in seven of the last ten years, a strategic review of where to hold long-term savings is urgently needed for many UK households.
