This week’s announcement of a surprise rise in the rate of inflation rate in March 2016 to 0.5%, as measured by the Consumer Prices Index, comes as a further blow to savers already suffering from record low interest rates.
If you hold your money in a bank savings or Cash ISA account, chances are you’ve not been enjoying fantastic growth in recent years. In fact, unless you’re one of those people that diligently moves their savings around year after year chasing the best available deal, it’s probably been a while since you saw anything above 1% interest.
And you wouldn’t be alone. In the UK there’s around £250 billion held in cash ISA accounts and the majority of it is earning little interest. According to a recent FCA report* the average high street cash savings rate is just 0.25%. The report found examples of rates as low as 0.01% for easy-access accounts that require branch access, earning you a mind-numbing £1 a year on every thousand pounds saved. Cash ISA rates don’t fare much better, averaging 0.75% per annum, but going as low as 0.1%. Suffice to say, none of these will set your world alight, or do much to encourage you to save for the future.
So, if you are currently earning 0.5% interest or less, your savings could be flat-lining, or even declining in real terms, following this week’s inflation announcement.
So what can you do? As long as economic growth continues at a snail’s pace, the Bank of England looks reluctant to raise interest rates. Maybe we should just settle for low returns and accept that the heydays of the 80s, 90s and noughties, when cash savings enjoyed returns as high as 13%, are over?
Luckily, you do have some alternatives.
A new wave of online companies, like Wealthify, are using technology to deliver straightforward and affordable online investment services to UK consumers. These so called robo-advice services offer low fees, no-notice withdrawal, the ability to get a fully diversified investment strategy with as little as £250 and investment plans that are managed by experts on your behalf. Increasingly, companies like Wealthify are making investing a viable option for UK savers, for the first time giving people with smaller sums to invest and no experience, access to real stock market returns. Unlike savings account interest rates, returns are not guaranteed, but a quick check of historic stock market performance shows that if you’re willing to accept some risk, in the long-term, there’s a good chance your investments will outperform regular cash savings.
Past performance is not an indicator of future growth. With investing, your capital is at risk and you might get back less than you put in.
* Source: Cash ISA & Bank Savings median rates of return on instant access open accounts taken from FCA Sunlight Remedy report 8th Dec 2015 link