A basic rate taxpayer currently needs a savings account that will pay 3.75% in order to beat inflation, according to new data released today by financial researcher Moneyfacts.
The figure for a 40% taxpayer is even higher, at 4.98%, and at this level is achievable only by tying your money up for 5 years in fixed-rate bonds, the report said.
Savers were increasingly looking to tax-free savings vehicles such as Individual Savings Accounts (ISAs) to maximise growth at a time when the Bank of England’s base rate is at an all-time low of 0.5%.
As a result, 71% of savers surveyed by Moneyfacts have indicated they are preparing to take full advantage of the new, higher ISA allowances of £10,200 coming into effect on April 6th.
The low interest rates are driving investors away from the cash ISA, however, with 81% of these ISA investors declaring they will instead be pouring their money into the stocks and shares ISA, according to research by Barclays Stockbrokers.
Barbara-Ann King, head of research at Barclays Stockbrokers, said: “In this low interest rate environment, investors also need to develop diversifed portfolios to stand the best chance of obtaining the returns they seek.”
Protected VCT can give 50 % effective growth over a 5 year period with the use of tax incentives