24 Nov 2024

Savings delayed due to unexpected rail increases

This month’s announcement of RPI triggered an increase in rail fares, predicted to be around 6.2% higher at the start of next year.

For a London commuter travelling from Colchester to London Liverpool Street, the predicted rise could mean finding an additional £272.

A great many people will fund their season tickets via work travel loans whilst others will fund it with money saved specifically for this purpose.

The rail companies argue that rises are necessary to fund rail development, but just how easy is it to find £272 from savings?

Size of investment needed to raise £272 interest less tax
	Average interest	Basic rate taxpayer would need to invest	Higher rate taxpayer would need to invest
No notice savings account	0.90%	£37,778	£50,333
Notice account	1.17%	£29,059	£38,718
One year fixed	2.86%	£11,888	£15,839
Source: Moneyfacts.co.uk

Assumes a standard rate taxpayer needs to raise £340 in interest and a higher rate taxpayer needs to raise £453 in interest from a savings account to gain £272 after tax. The averages used are across the previous 12 months assuming the investment was made one year ago to meet the latest increase. ISAs are not included due to the limited annual investment.

If a basic rate taxpayer were to invest £5,000 today into the market-leading instant access savings account (2.70% from Sainsbury’s Bank), they would need to invest for a period of two years and six months to raise £272 in net interest.

A higher rate taxpayer would need to invest £5,000 for a period of three years and five months to raise £272 in net interest.

Sylvia Waycot, spokesperson for Moneyfacts.co.uk, commented:

“The fact that you have to invest over £37,000 to be able to spend £272 of interest highlights the constant battle anyone who is relying on interest to fund their living expenses has.

“Savings rates have been rising over the last 12 months; the problem is that regardless of the rise, most still do not beat inflation.

“Bearing in mind interest rates on savings accounts are so low, finding the additional money from savings will be as hard as getting a seat on a busy commuter train, virtually impossible.”

Moneyfacts Group
Moneyfacts is the UK’s leading independent provider of personal financial information and our data is used and trusted throughout the financial industry.

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