This week marks the first anniversary of interest rates dropping to their record low of 0.25%. This was the first change to the Bank of England interest rate since 2009 when the rate fell to 0.5% in the wake of the financial crisis.
To mark the occasion, Fidelity International has conducted research to warn of the dangers of leaving savings languishing in deposit accounts while interest rates are so low.
The investment firm’s analysis shows that if you had deposited your full Isa allowance in the average cash account on 4 August last year (the day of the rate reduction), your £15,240 would have earnt you a measly £23.13, taking your savings to just £15,263.13 in 12 months.
However, had that £15,240 been invested into the FTSE All Share it would now be worth £17,462.30 – a gain of £2,222.30.
Commenting on the figures, Maike Currie, investment director for personal investing at Fidelity International says: “It’s been a year since the Bank of England cut interest rates to a record low of 0.25%, piling more misery on savers and retirees.
“This week expect all eyes to be on the Bank of England’s ‘Super Thursday’ announcement for a steer on whether a rate rise is coming. However, it’s unlikely that the Old Lady of Threadneedle Street’s policymakers will be in any rush to hike rates from their current 300-year low, particularly following last week’s tepid second quarter growth of just 0.3% quarter on quarter, or 1.7% year on year. The Bank will be reluctant to risk the economic recovery with a premature rate hike, not least with the recent fall in inflation to 2.6%.”
She adds that even though inflation has eased off in recent months it is likely to remain above the Bank of England’s 2% target for some time. As such savers need to consider the stock market if they want to protect their money from inflation.
“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. As our numbers show, staying in cash in just the past year alone would have severely stunted your returns - with your savings growing by a meagre £23.13.”