For a decade, the bank interest rates have left our nation’s nest eggs at the mercy inflation.
And after ten years of rock-bottom rates, more than £100billion of spending power has been lost to the march of rising prices, analysis for Money Mail today reveals.
The Bank of England decided not to raise the base rate, despite it being at a record low of 0.1% last week. However, they also predicted that inflation would peak at 5.1% next year.
Inflation strikes: And after ten years of rock-bottom rates, more than £100bn of spending power has been lost to the march of rising prices
The good news was for the borrowers who enjoyed long-term low rates on their mortgages, but it was bad for those saving for the future.
Since its financial crisis cut, the base rate was lower than 1 percent for over ten years.
Yet inflation has remained close to 3 per cent, on average — peaking at 5.2 per cent in 2011.
Anna Bowes co-founder Savings Champion says that a rate rise would “have marked the end to a decade’s low interest rates which has decimated savers hard-earned money’.
She says, “Savers were sacrificed for the sake of borrowers too long.”
Is it worth fighting inflation, which is predicted to take more of your savings?
Do not waste your time
Inflation has totalled nearly 20 per cent over the past ten years — making £10,000 then worth £8,368 now, according to broker AJ Bell.
Average returns on easy-access accounts were 6.42 percent, note accounts 18.6 percent, and cash Isas 15.5% over the last decade.
Measly returns: There is close to £250bn in accounts that pay no interest – meaning savers are missing out on nearly £1.7bn in interest a year
Households had more than £1trillion saved in 2011. The analysis by AJ Bell shows that cash would now be worth £73billion less.
This loss in spending power rises to more than £100billion if all the deposits made over the decade are included.
Laith Khalaf is the head of investment analysis for AJ Bell. He says that inflation has crushed cash over the last decade, even though prices have risen very modestly, due to the Bank of England’s extremely low interest rate policy.
“Low savings rates will not go away, but inflation continues to rise.”
“Hopefully, the current inflation wave will end soon, but even then, it could still cause significant cash losses to banks at 5%.”
Do rates rise?
While the big High Street banks offer 0.01 percent on savings, they aren’t worth your consideration. Shawbrook Bank has the highest rate at 0.67%
According to experts, things look better now. In April, the gap between best- and poor-paying accounts stood at 0.4%.
Record low: Since the Financial Crisis, the Bank of England has had its base rate at 0.25% for more than 10 years.
Sarah Pennells from Royal London is a specialist in consumer finance.
There are more than 1,639 savings accounts on the market — the highest number since March 2020, when there were 1,768, according to data firm Moneyfacts.
Sarah Coles from Hargreaves Lansdown is a personal finance analyst.
“Compared to a year ago the highest fixed rates are greater for each period. Rates have more than doubled over the last two years. Although rates are very low, they have always been much lower.
Ditch & switch
There is close to £250billion in accounts that pay no interest — meaning savers are missing out on nearly £1.7billion in interest payments a year.
Hargreaves-Lansdown research revealed that nearly half of savers hadn’t switched accounts over the last five year, while close to one in five never did so.
Survey results showed that rates are too expensive to deal with. Others said they trust their bank, and it is not worth the effort.
However, Ms. Bowes states that it is important to understand what your earnings are and to switch to a better job if they aren’t fair.
“The more interest you earn, the less inflation will be a problem.”
Secure a deal
By locking their savings, savers can protect their cash from increasing prices.
Shawbrook Bank provides the best-paying notice account, which is 1.08 per cent.
Shawbrook Bank has the highest-paying notice account for 1.08 percent.
If you put your money away for one year, Zopa offers a fixed rate deal at 1.35 percent.
SmartSave offers a two-year fixed rate of 1.6 percent, while JN Bank will offer a 3.81 Percent over the same period.
Gatehouse Bank offers the best rates with their five-year Fixed-Term Woodland Saver Account.
Moneyfacts recent data shows that fixed rate bonds demand has doubled in the last six months.
However, fixing comes with risks. You could lose out on rising rates.
She stated that the market expected the Bank of England (BoE) to increase rates by 0.9 percent by 2022.
Hope with NS&I?
Savings experts say Treasury-backed bank National Savings and Investments (NS&I) could soon have to raise rates to pull in more money for the Government.
The bank, with more than 20 million Premium Bond savers, last year slashed rates to a pittance on most accounts — including 0.01 per cent on income bonds.
So far, the bank has pulled in just £600million of its £6billion fundraising target. James Blower (Savings Guru founder) says, “I’m surprised that we haven’t seen a rate.” [increase]Announcement yet, as they are still far from their net financing goal with just five months left in their financial calendar.
Italicized Isas
Also, the top cash Isa pays 0.67 percent. The Isas you receive are not subject to tax so there is no income tax due on the returns.
However, with rates so low you are unlikely to make more than the current £2,000 personal allowance on offer for ordinary savings accounts.
Only 0.6% is the current top-paying cash Isa. so you are unlikely to make more than the current £2,000 personal allowance on offer for ordinary savings accounts
An Isa allows you to save up to £20,000 a year, and Mr Blower says those who have used up their allowances in previous years, and have a big balance, could benefit from a ‘rate war’.
Hampshire Trust now pays 0.95 per cent on a one-year fixed account — nearly twice the best deal that was on offer in March.
Blower however says that ordinary savings accounts pay much higher rates than those with additional tax brackets.
Do not wait for the watchdog
Money Mail’s “Stop Shortchanging Savers” campaign in 2019 called for banks to offer loyal savers fair rates.
The Financial Conduct Authority (FCA) proposed forcing banks to pay their own minimum rate in a move that would hand an extra £381million in interest rate rewards to loyal savers, and boost competition in the market.
The pandemic caused interest rates to plummet so the plan was abandoned. This meant that the minimum rate could not be enforced.
A financial watchdog said that they want to see fewer people hoarding cash in large quantities, as this could make the stock markets more efficient.
Advocate Baroness Ros Altmann claims that although the FCA might reconsider its plan, it will not do so anytime soon. She also believes that even a slight increase in base rates may not result in interest rate increases.
She said, “Whatever rate of savings you have isn’t going to get any closer to inflation.”
“The government probably wants people’s money to be invested rather than saved, or to use their savings to maintain the economy.
“It’s very worrying, because domestic savings are needed to meet hardships in the future.
For comment, the FCA was reached.
b.wilkinson@dailymail.co.uk
