A neglected generation of British savers has lost money in real terms due to the lingering effects of ultra-low rates combined with high inflation, exclusive analysis of Moneyfacts’ historic savings data has found in the latest issue of the Moneyfacts INTEREST journal which will be published on Friday 25 July.

• Moneyfacts analysis has revealed that £1 saved in 2020 is now worth £0.89 in real terms because the average rates savers have earned have not kept pace with inflation.
• Between 2008 and 2022, the Moneyfacts Average Savings Rate sat at an average of 1.52%, 1.18% below inflation. Compare this to 1995-2007, when the Moneyfacts Average Savings Rate sat at an average of 3.78%, 2.06% above inflation.
• The margin between the Moneyfacts Average Savings Rate and CPI has been just 0.49% since July 2023. For those liable for tax on their interest, of which there were an estimated 2.1 million people in 2024-25, a figure which is set to rise by a further 3.5 million by 2027-28, a margin of this size is not enough to deliver positive real returns.

As a rule of thumb savings rates need be at least 2% above inflation to deliver positive real returns. Over the past five years, average savings rates have been 2% above inflation on just one occasion, in September 2024. This was also the only time inflation dropped below the 2% target during this period.

However, banks and building societies cannot solely shoulder the blame for such poor returns. Instead, the Bank of England should work towards a target base rate of around 2% above inflation to strike a better balance between encouraging investment and better discouraging overheating. It rewards prudence, supports economic stability and maintains confidence in the Bank of England s ability to manage the economic cycle.

While base rate decisions provide insight into how the Bank of England views the balance between taming inflation and supporting a stuttering economy, it also needs to leave itself enough headroom to respond to any future crises.

As inflation normalises in the coming years returning to a neutral rate zone of inflation plus 2% could offer long-term stability for households, lenders and businesses alike.

Adam French, Head of News at Moneyfacts, said “A generation of savers have paid a high price for low rates which have so far failed to ignite meaningful economic growth.

“Savers must act quickly to avoid inflation eroding their hard-earned wealth by moving their money to some of the more than 1,000 savings accounts available on the market that are beating inflation. Some of the top-paying accounts, which include easy access and fixed term accounts, pay over 4%, plus the best regular savings accounts, into which you can save smaller amounts each month, are paying around 7%.

“However, change cannot fall on savers alone, the Bank of England’s rate setters must also play their part in setting sustainable rates that reward savers and ensure a steady supply of deposits which can be used to fund mortgages, loans and other consumer credit products.”

Part or all of this press release can be reproduced, so long as we are sufficiently sourced.

Read more in the latest issue of the INTEREST journal, which you can read for free here.

- ENDS

INTEREST is dispatched in advance of meetings of The Bank of England’s Monetary Policy Committee and is distributed free of charge.

Next Issue Friday 25 July. To receive the latest issue and sign up please visit: https://www.moneyfactsgroup.co.uk/magazines-and-reports/interest/

Have an opinion? Letters to the Editor invited:

interest@moneyfacts.co.uk