Higher ISA limit could offset inflation

The small fall in inflation to 5% during October has done little to help savers, who are still struggling to find a savings account that can offset the effects of the rising cost of living.

Taxpayers at the basic 20% would need to invest into a savings account paying 6.25%, while higher rate taxpayers would require roughly 8.3% to avoid losing out in real terms.

With a lack of such products on the market, it is now being suggested that a rise in the ISA limit could help offset real losses. Without the tax deduction on this extra allowance, this would effectively act like a higher interest rate.

Consumers are being increasingly drawn towards inflation-linked products, which require an investment term of three years or more. Yet, the announced fall in the consumer price index for October brings to light the Bank of England's predictions that inflation is set to fall sharply in 2012, which would see the rates on inflation-linked accounts tumble.

Defaqto analyst David Black has suggested that savers could benefit by reviewing their savings regularly for the best returns.

"Savers should use their ISA allowance and look at fixed-rate bonds as a way of getting a higher return over the longer term. They should also take advantage of introductory bonuses and guaranteed minimum rates on savings accounts".

Bonds currently listed on Which4U include: Yorkshire Building Society's 18-Month Bond, which pays an AER of 3.5%; Natwest's 2-Year Fixed-Rate Bond, which returns 3.8%; Halifax's 4-Year Fixed-Rate Online Saver at 4.3%; and Scottish Widows' 5-Year Fixed-Rate Bond, which returns 4.6%. ISAs currently listed include NatWest and RBS' 3-Year Fixed-Rate ISAs at 4%, and Halifax's 4-Year Fixed-Rate ISA at 4.25%

How are you managing your savings to account for inflation? Why not check out Which4U's listed savings products and fixed-rate bonds today to see if we can help you avoid losing out in real terms?

Mark Hornby