The rate of inflation is currently much higher than the interest rates offered on savings accounts, and this means that UK savers are losing out on billions.

MoneyHighStreet has reported that, according to information from accountants UHY hacker young, inflation wipes £36 billion off the cumulative value of UK consumer savings.

Specifically, UK savers on average get a dismal 1.6% return on the cash they put away, whilst the accounts that should see bigger and better savings, such as ISAs, are not much better, with an average of 2.57%.

With inflation hitting 5.2%, according to April’s Retail Price Index, £36 billion is lost from £1 trillion worth of UK savings. The Consumer Price Index has an alternative figure for inflation of 4.5%, but this still equates to £29.42 billion that is lost.

Savers are advised to choose wisely when looking for a place to store and save their cash, and the best solution is to compare savings accounts.

Concerned UK savers can breathe a sigh of relief with the news that the New Year will bring new rules, with the first £85,000 in any bank or building society receiving automatic protection from the state.

Under the current rules, £50,000 is covered, but after the well documented collapse of Northern Rock, savers have been looking for more protection. This Is Money reports that the new Financial Services Compensation Scheme will push the limit up to £85,000 and that payments should be made within 20 working days, although the FSCS says it is aiming to achieve any necessary compensation payments within the target of 7 working days.
Many savers who used doomed bank Icesave were waiting up to 2 months, so this will come as very welcome news.

However, Kevin Mountford at Moneysupermarket.com has urged caution for savers with more than one pot: “Until 1 January, consumers with over £50,000 in the bank should ensure their money is spread between accounts, taking care to avoid using two products from the same provider - as only £50,000, or £100,000 for joint accounts, is protected within each institution.”

“It’s important savers check which banking group their accounts sit with, as two seemingly distinct providers might fall under the same banking umbrella. For example, First Direct is owned by HSBC, meaning any customer who has money saved with both providers will only be protected up to £50,000.”

The new safety net kicks in on January 1st, 2011.

Image: Moneysavingexpert.com

Santander could be about to tuck into your savings if you owe any money to the Spanish banking giant, or any of its subsidiaries. According to ThisIsMoney, anyone who has savings or current accounts held with Alliance & Leicester, and debts owing to Abbey, will see Santander use that cash to clear the arrears. It will also work in reverse; those saving with Abbey but owing to Alliance & Leicester will see the same fate.

Alliance & Leicester and Santander-owned Abbey bank will formally merge at the end of May, putting Santander in charge of all the accounts held with either bank. Santander can then legally exercise its right to use customers’ cash to clear overdue monies; this is known as ‘set-off’.

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It has been reported today that public sector pensions are costing UK taxpayers more than initially indicated, with the originally quoted figure of £770 billion increasing by over 50% to £1,200 billion, or £1.2 trillion. This astonishing statistic has been reported today by ThisIsMoney, with further news that the figure is not actually comprised of all public sector pensions; certain retirement funds such as those paid to local government staff are not included.

When this figure is broken down, it equates to £47,000 per household. At a time of economic difficulty, many UK workers are having to go without a pension. Fronting a massive bill for someone else’s retirement fund, whilst having to sacrifice their own, will be a difficult pill to swallow for UK private sector workers.

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The ISA season is here, and it’s time for providers to start competing for the attention of UK savers. An ISA provides tax-free returns on savings, and the next few weeks will see a lot of activity from the likes of Santander, Newcastle building society and Nationwide.

According to Moneyfacts.co.uk, savers should be looking at transferring their ISA, with a massive 92% of cash ISAs accepting ‘transfers in’. Cash ISAs that provide this option have increased from 183 to 272; the average fixed rate ISA is paying 3.24%, which is a positive contrast to last year’s 2.81%.

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Back in early 1999, Equitable Life went to court attempting to gain approval to enforce bonus cuts on policyholders. Equitable Life was dealt the most extreme of blows when the House of Lords upheld the decision to refuse its request; a year after it had actually won the first stage of court proceedings.

BBC had quoted the cost of losing at a whopping £1.5 billion, leaving Equitable Life in a desperate situation where sale was the only feasible option. Shortly afterwards, policyholders found out that with-profits policies would not receive any growth for seven months, new business would be stopped and the penalty for withdrawal would increase. Chaos at Equitable Life ensued, and 9 years later policyholders are still fighting tooth and nail for some kind of compensation.

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This morning Reuters revealed that mortgage approvals by British banks have increased by 37.8% from January last year. Although this initially appears positive, the UK has actually seen a record low for net lending. The Daily Mail has said that lending for January is the lowest for eight and a half years, with an end to stamp duty partly responsible.

December saw lending reach £10.92 billion, with people wanting to take advantage of the stamp duty threshold staying at £175,000 until the turn of the new decade. Now it has fallen back by £50,000, and activity has inevitably lessened.

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Nearly half of all UK savings accounts pay interest rates of 0.5%, new research by financial information service Moneyfacts reveals.

Of these accounts, nearly half pay 0.1% or less, as many providers have made dramatic rate cuts in recent months. Moneyfacts reported that one in 10 savings accounts have cut their savings rates since last March, although 3.5% increased rates.

Today the Bank of England kept the official Bank rate at 5% for the eighth month in a row.

Michelle Slade of Moneyfacts suggested that interest is very low on some savings accounts because banks chose to cut their rates ahead of new rules stipulating that providers must give two months’ notice before they cut interest rates.

“It is savers, such as pensioners, who rely on the income from their savings to supplement their income who end up worse off,” she said.

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The Bank of England is expected to expand its radical programme of printing money by a further £50 billion today as it steps up the fight against the deepest economic downturn in decades.

Whilst other countries have begun to emerge from the recession, recent figures revealed a 0.4% slump in the UK economy between July and September, leading experts to predict that Mervyn King, the Bank’s Governor and the rest of the Monetary Policy Committee (MPC) will extend the total size of its quantitative easing plan to £225 billion - the size of the entire Greek economy. This is the sixth quarterly contraction in a row.

“It is a lot of money, but if it does restart the economy and gets it moving again then it’s worth it,” said George Buckley, an economist at Deutsche Bank. “It’s very difficult to say if quantitative easing is working, but it is doing something.”

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Credit unions have reported a rise in the number of people using them to save safely for Christmas.

The Association of British Credit Unions (Abcul) said that it saw a 15% rise in credit union savings in the two years to 2008.

As consumers seek to reduce their personal debt during the recession, there has been an increase in the number of credit unions offering Christmas savings accounts designed to help people manage their money ahead of the most expensive time of year.

According to research from Abcul, 71% of credit unions said they offered a Christmas savings account, with a further 18% planning to offer the account in the future.

Mark Lyonette, chief executive of Abcul, said: “Credit unions, as community-owned and controlled organisations, offer local people a well-trusted financial solution.

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