The old tenner lost a third of its value in 18 years – protect your savings from inflation

2 March 2018

Savers should think carefully about where to keep their cash, as the now defunct old paper £10 note lost a third of its value in the time it circulated thanks to inflation.

The ‘Charles Darwin’ £10 note was first introduced in November 2000. As of now, it has now ceased to be legal tender.

But if you had obtained one of these notes when they were first issued and stuffed it in a piggy bank, it would be worth a third less today thanks to the pesky inflation ‘mouse’ nibbling away at its value. Indeed, £10 in the year 2000 would only be worth £6.17 in real terms today.

That is why it is essential to put your money into savings vehicles that keep ahead of inflation.

On average since 2000, the retail prices index (RPI) measure of inflation has risen by 2.8%, according to M&G Investments. But while savings accounts and Cash Isas are protected (to an extent) by the Financial Services Compensation Scheme (FSCS), following the 2008 financial crash it’s been difficult – if not impossible – to beat inflation using one of these traditional cash accounts.  

By comparison, money saved into a Stocks and Shares Isa and invested in the FTSE All-Share index would have more than doubled its real terms value – although investments aren’t FSCS protected. This is also true of UK government bonds, residential property, or commercial property. And that is despite the ups and downs of global markets, including the 2008 crash.

The below table shows how different savings methods would have changed the value of £10 in just under 18 years:

Asset classFace value of £10 in 2018Real term value of £10 accounting for inflation since 2000
Cash in piggy bank£10£6.17
Cash savings account£11.78£7.27
FTSE All-Share index£24.13£14.90
UK Government bonds£24.70£15.25
UK Residential property£25.79£15.92
UK Commercial property£37.26£23.00

Source: M&G Investments, March 2018. All figures calculated from 31/10/2000-31/01/2018.

Ritu Vohora, investment director at M&G, comments: “Inflation has wiped off a third of the real value of the Charles Darwin £10 note since it came into circulation 18 years ago, and with prices rising at 3% per year today, the value of the new Jane Austen £10 note is eroding even faster.

“But our analysis shows how long-term investing – whether that’s in shares, bonds or property – can protect against inflation and generate a healthy return. You can invest in a Stocks and Shares Isa from as little as £10 per month. With the new financial year fast approaching, people need to make sure they are taking advantage of as much of their tax-free Isa allowance as possible to ensure their money is working as hard as it can.”

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