Cash-Only Savers Lose Thousands of Pounds Over the Past Decade

Savers who have kept £10,000 in cash over the past ten years have effectively lost out on £16,000 in returns, thanks to a combination of high inflation and low interest rates.

According to new analysis from investment firm Fidelity International, cash-only savers have paid a steep price for the historically low base rate, which has been stuck at either 0.5 per cent or 0.25 per cent since March 2009.

By contrast, the inflation rate has averaged 2.24 per cent over this period, meaning that a saver who placed £10,000 in a UK-based cash savings account would have seen their money eroded to just £8,256 in real terms.

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Fidelity analysts have calculated that if the same sum had been invested in the FTSE All Share, it would be worth £24,002 today, even after inflation has been taken into consideration.

Meanwhile, hopes are rapidly fading that the Bank of England’s Monetary Policy Committee (MPC) will finally raise the base rate during its next meeting on 2 August. Last week, weaker than expected inflation and earnings growth data sparked fears that the MPC will hold off on a new rate rise until the economy strengthens. This would mean at least three more months of low interest rates for savers.

“This should be act as a wakeup call for anyone with sizeable chunks of money in cash savings accounts,” said Tom Stevenson, investment director for Personal Investing at Fidelity International. “While there may be a few cash accounts out there that offer inflation beating interest rates they often only last for 12 months and come with a number of restrictions.

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“Over the medium- long term then, keeping large sums in cash is almost a sure-fire way to erode the value of your savings. With this in mind and with inflation likely to outpace interest rates for some time to come, the stock market continues to be your best bet for generating inflation-beating returns.

“While investing in stocks and shares may be more risky than keeping your money in cash, history shows that over the long run equities have significantly outperformed cash and continue to be the sensible choice for anyone looking for long-term real returns.”

Also published on Medium.

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Last updated: August 3rd, 2018

Kathryn Gaw

Kathryn Gaw is a financial journalist based in Belfast, Northern Ireland. She has been writing about personal finance and investment trends for more than a decade, and her work has been featured in the Financial Times, City A.M., the Press Association, and The Irish Independent, among many other publications.

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