Most savings accounts have failed to offer a real return for at least five years, according to Defaqto, the research firm.

Once tax and inflation are taken out of quoted gross rates, instant access accounts have on average lost value for savers.

Higher-rate taxpayers have been particularly hard hit because of their 40 per cent tax liability on interest, but basic-rate taxpayers have also generally failed to achieve a real return.

Instant access accounts have on average lost higher-
rate taxpayers 1.45 per cent a year in real terms since late 2003. The average real return on cash for basic-rate taxpayers has been a negative 0.79 per cent.

The analysis underlines the difficulties of maintaining the purchasing power of cash savings, even at times when inflation is relatively low. Equally, in spite of savings rates benefiting from competition during the credit squeeze over the past year, rising inflation has meant worsening real returns.

With RPI now 5 per cent, a higher-rate taxpayer needs to earn 8.33 per cent gross merely to keep pace with inflation – a rate that is not obtainable in normal taxed savings accounts. A basic rate taxpayer needs to earn above 6.25 per cent for a real return.

“Higher-rate taxpayers are always going to struggle [to earn a real return]” says David Black, principal banking consultant at Defaqto.

He says that while savers have generally not kept up with inflation, those who have been prepared to keep moving their money into the highest-paying deals have been able to achieve some level of real return for much of the past five years. Most tax-free Isa savers also continue to earn returns in excess of inflation.

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