Sterling's slide after Hard Brexit talk, rising inflation and lower-than-ever interest rates mean savers looking for good returns on cash savings accounts will actually lose money, Octopus Choice has stated.
Research by the peer-to-peer lending platform has revealed that while many investors may be looking to the safety of cash to shield themselves from possible stock market volatility ahead of the US election next month and triggering of Article 50 in March 2017, they risk serious underperformance from cash.
Octopus Choice calculated £10,000 deposited today in the average one-year fixed term savings account - paying an average of 0.74 per cent - will be worth just £9,933 in real money when it is withdrawn a year later, assuming current Bank of England inflation and interest rate forecasts.
Indeed, two days ago, Santander informed customers on an old savings account that their interest rate of 0.1 per cent would be reduced to 0.01 per cent next year as a result of the Bank of England cutting rates from 0.5 per cent to 0.25 per cent.
In essence, according to Octopus Choice, £10,000 saved in the average high street savings account today will be worth just £9,933 in real money after one year.
In two years, £10,000 worth just £9,819 in real money.
Meanwhile, deposits made today of £5,000 and £1,000 will be worth £4,966 and £993 respectively in real money when withdrawn 12 months later.
Richard Wazacz, head of Octopus Choice, called this a "toxic combination" of low interest rates and rising inflation, as far from growing, money saved in a typical high street fixed term savings account today will shrink.
|Amount Invested||Average High Street Rate||Actual Value After One Year||Real Value After One Year|
Mr Wazacz added: “People are well aware that the returns on the average high street savings account are negligible, but are they aware that their savings will actually fall in value in real terms over the next 12 and 24 months?
"And it could get even worse if inflation rises faster than current forecasts. After the latest inflation data, that certainly seems possible.
“The conclusion is clear: for those who want to make their excess cash work harder, they’ll need to look beyond the bank. It goes without saying that anyone looking to better their returns by investing should pay close attention to the risks involved.
"But people also need to wise up to the very real ‘savings risk’ that they now face. For savers, times have arguably never been as tough.”
The comments from Mr Wazacz came as data from Moneyfacts.co.uk revealed rate reductions in the savings market have now outweighed rate increases for 12 consecutive months.
In September, Moneyfacts recorded 29 savings rate increases.
Disappointingly, rate reductions over the same period completely outshone this figure, with the number of rate decreases standing at 164 – which translates to around six cuts to every rate rise – with some deals falling by as much as 0.75 per cent.
The Consumer Prices Index (CPI) rose to 1 per cent during September, which Moneyfacts argued means savers now have very few accounts to choose from that match or beat this level.
Today, less than half (266) of the 644 savings accounts currently on the market can beat or match inflation, and of these 250 (12 no notice, 18 notice, 152 fixed rate bonds and 68 cash Isas) are without restrictive criteria.
Sam: 20th Oct 2016 13:56:00
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