Savings warning as millions of Britons face losing £2,700 to inflation

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Savers have been urged to consider using ISAs for long-term investments as they will lose value in real terms to inflation if they keep their money in a savings account. Even with the current high interest rates offered on high street savings accounts, a person with £10,000 in savings will lose hundreds of pounds in value over the next 10 years.

True Potential calculated a person who kept their £10,000 in cash would see it drop in value to £7,348.15 by 2033.

They found a person who invested the money in a savings account would still not be able to beat inflation, losing £523 in value by 2025. Their return over the course of a decade would be just £843.

The latest CPI figure for inflation was 10.4 percent for February, up from 10.1 percent in January.

Rising prices for everyday essentials mean people’s income and return from savings have less value.

The rate of inflation is outpacing the interest rate on savings accounts and wage increases meaning millions of Britons are losing money in real terms.

True Potential is urging people to invest in ISAs and use up their annual allowance of £20,000 before the tax year ends.

Investing in a stocks and shares ISA with six percent growth would grow a £10,000 investment to £14,200 in 2033.

This is almost double what it would be worth if the amount had been held in cash and more than £3,000 more than if it had been put in a top-paying high street savings account.

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Daniel Harrison, CEO of True Potential, said: “With severe inflation stalking British savings accounts, it has never been more important to make use of your ISA allowance and put those savings to work to secure a healthy return.

“The FTSE 100 recently achieved its all-time high and has averaged around 10 percent annual growth since its inception.

“In the longer term a stocks and shares ISA is the only way to stay ahead of events.

“Savers simply cannot afford to do nothing, as standing still will only erode the value of their cash and plans for future financial security.”

He also called on the Government to increase the £20,000 annual ISA allowance. Mr Harrison said: “The Government needs to take its foot off the brake for savers and raise the £20,000 annual ISA limit, which has been frozen since 2017.

“Having experienced such high inflation, it’s time to increase it again and provide a welcome boost for savers.”

Figures from the Financial Conduct Authority suggest there are £86billion of savings that have lost value by more than £8.6billion since the first quarter of 2022.

One way younger savers can boost their ISA savings before the end of the tax year by £1,000 is with a Lifetime ISA.

The scheme allows a saver to deposit up to £4,000 each financial year, with the Government providing a 25 percent bonus on any amount deposited.

A person can open an account between the ages of 18 and 39, and can save into the account until they are 50.

The money can be used to buy a first home or can be withdrawn when a person turns 60, or if they are terminally ill with less than 12 months to live.

It is important people know about these stipulations, as withdrawing funds for any other reason will mean the person loses their bonus and they will get a withdrawal charge. This would mean they lose money on the investment.

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