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Savings accounts offer negative rates of return

Only two in 10 savings accounts offered on the high street give positive real rates of return for richer investors, according to a survey from Bates Investment Services.

The survey reveals that 70 per cent of all deposit accounts offer higher-rate taxpayers a negative real rate of return and for high street accounts this rises to 80 per cent.

This is due to bank base rate remaining unchanged at 4.75 per cent for six months and inflation rising to 2.5 per cent in December 2004.

For basic-rate taxpayers, almost three in 10 accounts fail to offer a positive rate of return.

Bates has calculated that, for a lower-rate taxpayer, 2.78 per cent gross interest is needed to break even on an account while basic-rate taxpayers need 3.13 per cent and higher-rate taxpayers need 4.17 per cent.

The report urges savers to match their deposit savings to an account that not only offers them the chance of positive real returns after tax and inflation but also where the terms of the account suits their own needs and circumstances.

Senior investment adviser Paul Illot says: “Even where positive real rates of return are possible, there are still a number of tripwires that savers need to be aware of.

“Many higher-interest accounts are only accessible via the internet, others include temporary bonuses that will disappear after a few months leaving longer-term savers in lower-interest-paying accounts, and some require savers to lock in their savings for longer periods or face early withdrawal penalties.”

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