Fewer than one in 10 savings accounts on the market offer returns that beat tax and inflation, a financial website said yesterday.
Even though the Consumer Prices Index (CPI) rate of inflation fell back to 1.9 per cent in January, Moneyfacts said there are still just 31 non-Isa accounts on the market out of a total of 627 that will negate the impact of tax and inflation.
The situation with Isas, which are a tax-free type of savings account, is slightly better. Some 53 out of the 235 tax-free Isa savings accounts available offer rates that will offset inflation.
This means that in total, just 84 out of 862 Isa and non-Isa savings accounts on the market will offer real returns when both tax and inflation are taken into account, according to Moneyfacts.
To beat inflation, a basic rate taxpayer at 20 per cent needs to find a savings account paying 2.38 per cent, while a higher rate taxpayer at 40 per cent needs to find an account paying at least 3.17 per cent.
Despite signs that the pressure of living costs is now easing back, such has been the eroding impact of inflation on savings that Moneyfacts calculates that £10,000 invested five years ago, allowing for average interest and basic rate tax, would have the spending power of just £8,840 today.
During “Isa season”, which happens around this time of year, providers usually increase competition as they try to attract savers who have not yet used this year’s Isa allowance or are looking for somewhere to put their money for the next financial year.
In the current financial year which runs up to April 5, up to £5,760 can be saved into a cash Isa. Savers will then be able to place up to another £5,940 into a cash Isa during the year 2014/15.
Sylvia Waycot, editor of Moneyfacts.co.uk, said: “Normally we would expect Isa season to be well under way by now, but just like last year, things are not looking good.
“Instead of the buzz of activity from Isa providers making ready for the start of the new tax year, we have a lethargy that has managed to increase cash Isa product numbers by just seven for the entire month of January.”
According to Moneyfacts’ “best buy” tables, the top-paying fixed-rate cash Isa is from Leeds Building Society and pays a rate of 3.05 per cent for five years.
The top-paying fixed-rate bond is a seven-year deal from Secure Trust Bank at 3.52 per cent.
The average interest paid across all Isas is just 1.66 per cent, down from 1.74 per cent a year ago. There had been hopes that the withdrawal of a scheme called Funding for Lending for households would lead to some better products being launched for savers.
Funding for Lending, which helped to boost the mortgage market last year, had been blamed for making banks less reliant on needing to attract savers’ deposits as it has given them access to cheap funding. The scheme has been re-directed towards helping businesses in 2014.