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Investors ignore effect of inflation

Many savers fail to get the best rate of return because they do not take into account tax and inflation, says National Savings & Investments.

Its research shows that while most people acknowledge that £1,000 buys less than it did a decade ago, 74 per cent of savers do not consider inflation, currently 3.1 per cent, when thinking about their savings while 59 per cent ignore their tax status.

The most financially aware are those aged between 55 and 64 who are looking to maximise their income before retirement. But while 46 per cent of them acknowledge the effects of tax, only 30 per cent take inflation into account.

The least interested savers fall into the 25-34 age group, with only 15 per cent appreciating inflation.

Commercial director Gill Cattanach says savers should choose a product which offers above the rate of inflation so as not to see their purchasing power decline.

He says: “People should consider the future effect of inflation so they can choose a savings product with an interest rate that is likely to be above inflation, otherwise they can actually see their spending power fall.”

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