Inflation rate increases to 4.5%‎

To beat inflation, a basic rate taxpayer at 20% needs to find a savings account paying 5.63 per cent per annum, while a higher rate taxpayer at 40% needs to find an account paying at least 7.50 per cent.

Taxpayers can choose from 5 accounts that negate the effects of tax and inflation, all of which are fixed-rate ISAs. However, there is not a single account available that beats RPI at 5.2 per cent.

The effect of inflation on savings means that £10,000 invested five years ago, allowing for average interest and tax at 20 per cent, would have the spending power of just £9,345 today.

Sylvia Waycot, spokesperson for Moneyfacts, said:

“Inflation continues to whittle away any hope of a decent return on the nation’s savings. Without any hope of respite, all savers can do is sing the blues as they watch their spending power disappear down the Swanny.

“Today’s rate of inflation means hundreds of thousands of savers need accounts paying a staggering 7.50 per cent before they earn a real rate of return on their savings.

“Anything less means they will fall into ‘the eroding spending power trap’ which has already wiped £655 off the spending power of £10,000 in just five years.

“Over the last year the number of savings accounts that beat inflation for basic rate taxpayers has dropped successively from 91 to a measly 5 today, all of which are fixed rate ISAs.

“Cash ISAs limit the amount of investment and therefore return, which is yet a further hindrance when trying to make ends meet.”