Typical saver LOSING almost 9% of their cash in real terms as returns hit 46-year low: Inflation!

According to "This is Money", real-terms savings returns have plummeted to their lowest level since February 1976, with inflation eating away almost 9 per cent of the typical rainy day fund last month.

The real annual return on savings fell to -9 per cent in July, according to a study by mutual Scottish Friendly and think tank the Centre for Economics and Business Research (Cebr).

A slight increase in average savings rates meant smaller annual falls in August and September, but these still amounted to real-terms drops of -8.8 per cent and -8.9 per cent respectively.

Consumer Prices Index inflation rose again to 10.1 per cent in the 12 months to September, marginally up from the 9.9 per cent recorded in August.

It means that consumer prices are rising by more than five times the Bank of England's long-term target of 2 per cent. Meanwhile the average easy-access savings rate was only 0.85 per cent at the start of September, according to Moneyfacts data.

The Scottish Friendly and CEBR study estimated that the average UK household saved just £17 a week between July and September, as inflation remained high. This represented an annual fall of 74 per cent, with the average household thought to have saved £66 per week during the same period last year.

To offset the impact of inflation, households would have to earn an extra £59 a week before tax or spend £49 a week less to be able to save at the same level as this time last year.

How much has inflation eroded savings?

According to This is Money's historic inflation calculator, which uses the longer-running Retail Price Index measure of inflation rather than the Consumer Price Index, inflation has risen by 795 per cent between 1976 and now.

The calculator tells us that someone with £100 back in 1976 would need £894 today to have the same purchasing power. The CEBR and Scottish Friendly Study modelled estimates of the average monthly interest rate on instant access savings using Bank of England data to compare how typical savings deposits have grown over time.

It found that a deposit of £100 in 1976 would be worth £1,067 in nominal terms today. This equates to growth of nearly 970 per cent. However, with inflation accounted for, the real return on savings between 1976 and today falls to just 67.3 per cent. This equates to a total of only £167.30.

That would mean that the average easy-access saver with interest compounding monthly, would have benefited from a real term rate of about 0.35 per cent over that time, with inflation factored in.

For more than a year now, the rate paid on savings has remained below the CPI, meaning savers are actually losing money in 'real' terms. There isn't currently a single savings product on the market that gets anywhere close to matching the 10.1 per cent rate of inflation.

Even though savings rates have been increasing substantially in recent months, the best savings deals still fall woefully short. The best easy-access rate is 2.81 per cent. Kevin Brown, savings specialist at Scottish Friendly, said: 'The combined effect of rising inflation, stagnant wage growth and low interest rates means savers have been incredibly hard-pressed over the past year. 'These conditions created a perfect storm for savers that resulted in real returns falling to a 46-year low.'

Although real returns remain low, saving levels are expected to gradually improve following the announcement of the Energy Price Guarantee - despite the fact the Government bill-capping scheme has now been scaled back. The energy price guarantee stopped the Ofgem energy price cap rising to £3,549 for the average household on 1 October and limited the rise to £2,500 for the average household. It was originally put in place for the next two years, but this has been cut back to only next April by new Chancellor Jeremy Hunt.

Prior to the policy initially being announced, it was forecast that the amount of money that households would have available to save as a percentage of their disposable income would fall sharply over the next 12 months to a low of 1.9 per cent. But Scottish Friendly and the CEBR have now predicted that this ratio will rise to 6.9 per cent in 2023, as a portion of households' foregone expenditure on energy bills is expected to be saved - at least until April next year.