Growth ISAs still the only way to beat inflation

While many will understandably breathe a sigh of relief at the falling rate of inflation, the majority of savers continue to lose out.

Despite the slide in the cost of living, the low base rate means that savers are still struggling to uphold the purchasing power of their money.

The Consumer Prices Index measure of inflation showed a fall to 4.2% in December, down from 4.8% in November, thanks largely to a slowdown in the rise in prices of fuel and textiles.

Provisionally, a basic rate taxpayer needs a return of 5.25% gross interest per year in order to avoid losing out in real terms. A higher rate taxpayer would require an account paying over 7%.

The degree of the real term losses suffered by savers becomes evident when considering that the average easy access savings account currently returns less than 1%, while the average easy-access cash ISA, as noted recently, pays only 0.53%.

Currently, only growth ISAs and investment plans offer any chance of recouping real earnings for savers, and these are long-term products, often with an element of risk.

(Note: Which4U aims to make it abundantly clear where capital is not secured. Please note the ‘Capital Protected?’ field when investigating these products).

There are rewards without risk for those fortunate enough to be able to capitalise. A £10,000 investment in a 6-year Meteor Deposit Plan, for example, guarantees a strong 8% return.

Savers scrambled to sign up for inflation-linked bonds last year after inflation burst through the 5% barrier. Though the popularity of these products saw the quotas sell out very quickly, Legal & General still has an inflation-linked bond available. This promises to return at least 16% or, if greater, the full RPI increase with no cap. It is also available as a cash ISA.

Inflation, as noted above, is beginning to fall, and experts differ in their assessments of the long term picture. However, inflation-tracking savings accounts do guarantee against real-term losses and still provide the returns to savers that are not currently available anywhere else.

Check out Which4U's investment savings products today and see if long-term savings could be the right choice for you.

Mark Hornby