Neglected generation of savers have paid the price for low rates, as £1 saved in 2020 now worth 89p

Many will have lost money in real terms as savings accounts fail to keep up with inflation.

Rampant inflation (CPI) and uninspiring interest rates have left a generation of savers feeling the pinch, according to latest analysis of historic Moneyfacts data. It found £1 saved in 2020 is now worth just £0.89 as average rates failed to keep pace with the rising costs of goods and services.

This was partly a result of typical savings accounts returning 1.18% less than inflation on average between 2008 (during the global financial crisis) and 2022, based on the Moneyfacts Average Savings Rate.

While savings rates have since improved, many consumers are still at risk of losing money in real terms after it was last week revealed UK inflation accelerated beyond expectations to 3.6% in the year to June. As a rule of thumb, savings accounts must pay at least 2% above inflation to deliver positive returns but, with the margin between the Moneyfacts Average Savings Rate and CPI having sat at 0.49% on average since July 2023, savers are lacking incentive to shop around.

Nevertheless, Adam French, Head of News at Moneyfacts, highlighted more than 1,000 accounts can better the rate of inflation and urged savers to “act quickly” to avoid their hard-earned wealth being eroded.

How to beat inflation

Although the Moneyfacts Average Savings Rate today sits below inflation at 3.48%, there are plenty of competitive options that could see your money grow in real terms. The market-leading easy access savings account, for instance, offers new customers 5.00% AER when considering the 2.17% bonus included for 12 months.

However, despite the rise in inflation, the Bank of England could justify lowering the UK’s central interest rate next month in response to a weak jobs market and stunted economic growth. As this could see variable rates fall, savers who don’t mind forgoing access to their cash may want to secure a guaranteed return with a fixed bond. The best one-year fixed savings rate currently sits at 4.53% AER, and the top five-year fixed rate at 4.51% AER. The most competitive two- and three-year fixed bonds, meanwhile, both offer 4.44% AER.

But, keep in mind you could be left out of pocket if inflation rises above the rate at which you locked in, or miss out on better returns if the savings market changes trajectory.