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Household wealth eroded at the fastest pace in 50 years

·2-min read
couple calculating bills - Halfpoint Images/ Moment RF
couple calculating bills - Halfpoint Images/ Moment RF

Households savings are losing their value at the fastest pace in 50 years after soaring mortgage, food and energy costs pushed inflation to a 40-year high.

The consumer price index rose to 9.1pc in May, up from 9pc in April, but experts have warned the cost of living will rise further this year and erode savings at a rate not seen in a generation.

Some banks are still paying savers as little as 0.01pc on their money, while fixed mortgage interest rates have risen for eight consecutive months and wages have fallen by 2.2pc in real terms.

A saver with £10,000 in an easy access account paying the average market rate of 0.34pc would accrue just £34 in interest over a year. But the real value after 9.1pc inflation would be £9,197 – a loss of £837.

Over a decade, inflation would erode more than £6,000 and the pot would have more than halved in value, according to figures from analyst Savings Champion. The highest-paying easy access savings account is 1.55pc from Virgin Money.

Kevin Brown, of investment group Scottish Friendly, said: “The top cash savings rates are miles behind inflation and devaluing wealth at one of the fastest paces in the last 50 years.

“The gulf between interest rates and inflation hasn’t been this profound since the early 1970s.”

Those with savings in a cash Isa will also lose hundreds of pounds a year to inflation. After a year in an easy access Isa at an average rate of 0.51pc, £10,000 would have accrued £51 in interest. But soaring inflation would erode the pot’s real value down to £9,213 after one year, and £4,404 after a decade.

Anna Bowes of Savings Champion said it had “never been truer that every penny counts”.

James de Sausmarez, of asset manager Janus Henderson, said high inflation had “burned through” cash built up by savers through the pandemic.

He said: “British people are quite simply neglecting their futures by leaving such vast amounts languishing in cash.”

The Bank of England has increased the Bank Rate five times since December last year in a bid to curb rampant inflation, but has pushed up mortgage rates for millions of borrowers in the process.

Laura Suter, of fund shop AJ Bell, warned it had triggered the biggest rise in costs for homeowners since 1999. She added: “These costs will continue to increase this year, as we see the impact of the latest rate rise filter through to mortgage rates and push up costs for those re-mortgaging or first-time buyers.”

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