Barclays customers 'could miss out on £1,300' as savings expert issues account warning

Barclays customers have been issued a warning, with an expert cautioning that using the wrong account for savings could lead to a potential loss of £1,300.

Anna Bowes, savings expert from The Private Office, said that the unexpectedly high rate of inflation for July of 3.8 per cent - revealed last week - could mean people face missing out in a big way on money they've put away.

Speaking to Sky News, she explained that if people have standard open savings accounts, rock bottom interest could have a big impact when inflation is soaring.

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She said Barclays is paying 1.11% on its Everyday Saver account. Ms Bowes explained: "A basic-rate taxpayer with £50,000 in this account would take home a net return of less than 1%, at 0.89%. Compare that with a competitive account paying around 4.5% (before the deduction of tax): after tax, the basic-rate saver would take home 3.6% and the higher-rate saver 2.7%. Although neither beat inflation, both are far better than the paltry return from Barclays.

"And the effect on purchasing power is clear. With inflation at 3.8%, £50,000 left in the Barclays account for a year would grow to £50,445 after basic rate interest has been accounted for, but its real value would shrink to £48,589 once inflation is taken into account.", reports the Express.

"The same sum in a 4.5% account (3.60% after tax) would grow to £51,800 after tax. More importantly, its "real value" would be £49,904. Choosing the wrong account could therefore reduce purchasing power by more than £1,300 in a single year."

Economic experts are now forecasting that theBank of England will delay an interest rate reduction until later this year, which could spell higher returns for savers.

However, last week's inflation surge triggered immediate market shifts, as Ms Bowes outlined: "The changes in the easy access market have been limited - and any moves that have been made have been for the worse.

"Cahoot closed issue 10 of its Simple Saver, which was paying 4.55%, and reissued a new version paying just 4.4% AER - and this is the top paying unrestricted account. We also saw the West Brom Building Society's Four Access Saver (Issue 3), paying 4.55%, withdrawn from the market.

"Unfortunately, with inflation ticking up, this means that for taxpayers who are already using their Personal Savings and ISA allowances, none of these accounts can earn more than inflation - but by choosing the best rates, savers can at least mitigate the damaging effect of inflation on their savings.

"To keep up with inflation at 3.8%, a basic-rate taxpayer needs a gross return of 4.75% on a taxable account, while a higher-rate taxpayer would need 6.33% - an impossible task in the current market.

"Even so, shopping around makes a substantial difference."

UK Consumer Prices Index (CPI) inflation has been on the rise in recent months, with food price inflation reaching its highest level in over a year. The Bank of England now anticipates CPI to peak at 4% in September, a significant increase from their previous estimate of 3.5%.

Catherine Mann, a member of the Bank's Monetary Policy Committee (MPC), emphasised that "by squeezing out inflation today, you prevent it from persisting in the future", warning that "if this policy is not followed, even tighter policy would be required later" to control inflation.

Kundan Bhaduri, Entrepreneur and Landlord at London-based The Kushman Group, said inflation is eroding savings.

He added: "The savings industry has mastered the art of offering infinite choice in a market designed to fleece customers. There's shockingly 2,000+ ways to lose money to inflation, each wrapped in marketing.

"This explosion in product variety is pure theatre, designed to distract savers from the uncomfortable truth that their diligent accumulation is being systematically pickpocketed by monetary policy. The institutions celebrating record choice are the same ones paying rates that guarantee wealth destruction for anyone foolish enough to believe cash is still king.

“Smart money fled savings accounts years ago when it became obvious that central banks had declared war on prudence. While pensioners celebrate their pathetic ISA rates, property investors collect rental yields that actually exceed inflation plus capital growth that compounds wealth rather than erodes it.”