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Inflation confuses savers

23/07/2008

Almost a third of British savers do not understand how inflation is affecting their savings, a survey has found.

A survey from NS&I (National Savings and Investments) found that despite widespread coverage of the credit crunch, 31 per cent of people said they do not understand how inflation affects their savings while almost one in ten (nine per cent) said they do not know what inflation is at all.

More than a quarter (28 per cent) of people also had no idea how tax affects their savings.

John Prout, NS&I's sales director, said: "People are more likely to think about how inflation affects the price of their shopping basket, but not how it affects the value of their savings.

"The RPI is one of the measures of inflation and with it averaging 3.98 per cent last year if we don't put our savings in a tax-free account matching or a non-tax free account beating this rate then our money will be worth less in the future."

Inflation, the tendency for prices to rise, is creeping up, and the consumer price index now stands at 3.8 per cent.

Older people seem to have a better grasp of how inflation and tax will affect their savings than younger people.

Only 17 per cent of 55-64 year-olds unaware of the affect of inflation on savings compared to 41 per cent of 16-24 year-olds, while 16 per cent of the older group were unclear about tax against 45 per cent of younger people.

John Prout said: "It appears that an understanding of the impact of inflation and tax on savings increases as we get older.

"The younger generations, who have grown up in a time when the economy has seen low levels of inflation need to also be aware of the effect of inflation on our savings as well as our outgoings."