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UK savers lost over £1,000 to record high inflation

·Finance Reporter, Yahoo Finance UK
·2-min read
UK savers A jar full of saved one pound coins.
UK savers could lose thousands if inflation keeps rising. Photo: Getty

The average UK saver has lost more than £1,000 over the past five years due to a combination of soaring inflation and low interest rates on saving accounts, according to personal finance comparison site finder.com.

With the average UK saver having about £7,500 put aside and easy-access savings rates losing 13.5% of their value to inflation since 2017, this means savers’ money will be worth over £1,000 less in real terms than five years ago.

Inflation rates are expected to rise again by the end of the year to 11%, despite currently being at its highest rate since 1981. If this happens and savings interest rates stayed the same, it would mean savings accounts would effectively lose 10.5%, or £789, in value each year.

Michelle Stevens, banking expert at finder.com, said: “The fact that savings accounts are currently losing people a lot of money in real terms is yet another worrying outcome from the cost of living crisis.

"They are still a prudent choice for many consumers given the security they offer and the fact that they do still earn you interest, however it may not be a sustainable option for many if inflation doesn’t start to come down soon. 

“However, a bear market – that many predict will get worse – isn’t inspiring confidence in choices like investing or cryptocurrency either. The potential to get inflation-beating returns also comes with the possibility of losing some or all of your money.”

Average inflation and savings rates since the 80s. Chart: finder.com
Average inflation and savings rates since the 80s. Chart: finder.com

Going back 10 years, someone who saved £7,500 in 2012 would currently have lost around £950 in real terms, or 12.6% of their savings value.

Savings accounts are also not paying as much as they once did. The average interest rates on savings accounts peaked at 13.56% in 1990, and have only decreased since. The lowest average interest rate recorded in the past 35 years was in 2021 at 0.35%, a 97% plunge from 1990.

While interest rates have increased again since 2021, with some savings accounts offering interest up to 3.5%, this is still well below record high inflation.

Inflation in the UK is at record high levels
Inflation in the UK is at record high levels. Graphic: Yahoo/ONS

Stevens added: “One option to protect your money, for those under 40, is to get an ISA. A lifetime ISA offers a guaranteed 25% return (up to £1,000 per year), but it must only be used to buy a first property or taken out after reaching 60 or you will forfeit the interest on the account.

“Also, putting more into your pension pot could be another option as you get employer contributions and tax relief from the government.”

Watch: Is a UK state pension enough to survive on in retirement?