10th anniversary of interest rate cuts from the financial crisis:

UK savers have lost a quarter of savings’ value from low rates, with more losses to come, warns investment specialists BondMason

8 October 2018 marks the 10th anniversary of the start of the UK’s interest rates’ rapid fall from 5% to 0.25% as the Bank of England cut rates six times in quick succession, reaching unprecedented lows, as it fought to stave off the effects of the global financial crisis. Today they are only fractionally higher at 0.75%. [i]

The outcome is that for much of the period inflation has been much higher than the interest earned on deposit accounts, causing the real value of savings to steadily decline for much of the period.  Many people will have lost up to a quarter of the value of their savings from not choosing an alternative home for their money during the past decade, observes investment specialists BondMason (www.bondmason.com). [ii]

BondMason’s new research shows that the UK’s millions of savers are still feeling the effect of the low interest rate environment, with many continuing to keep large sums of money in low / zero interest bank accounts, still unsure of where to put it instead.

The research was conducted recently for BondMason by accredited market research agency DRG, who interviewed over 1,000 UK adults holding more than £25,000 of savings or investments.

Stephen Findlay, CEO of BondMason, explains:

Our research shows that a big problem stems from the fact that most people significantly underestimate the way inflation erodes the real value of their savings.  For instance, if you had £10,000 in a zero-interest bank account then, over the past three years alone, it will have lost around £650 in value.  About half of people interviewed thought the impact was substantially less, with nearly 10% mistakenly thinking inflation had no effect at all.

“This misconception means many people do not realise the extent to which inflation is steadily making them poorer.  The majority of people have continued to keep a lot of money in the bank through uncertainty and inertia, rather than investing it after the financial crisis, and this has cost them at least £1,920 in real terms for every £10,000 of savings. [iii]

“In fact, our research found that 14.5% of people surveyed had sought to increase the money they hold in the bank, which is the one investment strategy that guarantees you will have lost money in the past decade and this is likely to continue for the foreseeable future.”

How savers have lost out to the double-whammy of low interest rates and rising inflation:

chart

Stephen Findlay added:

“By contrast, for those who invested £10,000 into fixed term bonds, their money would now be worth £11,434 in real terms (after the impact of inflation) if they were receiving 3.5% p.a.  If they had put it in a simple UK stock market tracker fund and they would have would have made a gain of £3,384 in real terms, over the same period.”

chart

Other key findings from the research include:

  • Only 24% of those with more than £25,000 in the bank actually felt “a bank account is the best place to safely earn a good return”.
  • Investor confusion regarding the different financial products available is one of the biggest drivers of inertia, with 9% of people unaware of the alternatives to bank savings accounts and 22% thinking all other options are too risky.
  • In responding to the low interest rates of the past 10 years, 23% said they had tended to invest more in shares, 15.5% had tended to invest more in fixed term bonds, 8.2% had tended to invest more in property, and 14.5% had actually increased the amount of money they hold in the bank (18.6% had actively reduced it).

Even now, 10 years on, inflation is 2.4% and the top savings account only pays 1.41% for easy access (Yorkshire BS) and 2.7% if you are prepared to lock it up for 5 years (Charter Savings Bank), with most paying significantly less than this. [iv]

Stephen Findlay, CEO of BondMason, said:

“There was a small Bank of England base rate rise in August to 0.75%, even with further increases it will still be way short of the 5% rate we were enjoying at the start of October 2008, and we don’t expect it to move above 2% in the next 5-8 years.  Any further increases will be good for savers, but I don’t expect to see a return to bank accounts paying a decent positive return on savings any time in the foreseeable future. 

“My message to the millions of people with large amounts languishing in the bank waiting for better times is to instead to speak to a financial adviser and also start doing your own research.  Otherwise, if you leave it there another 10 years, you may well find the value of your savings has reduced even further through the hidden effects of inflation.”

chart

 

Media Enquiries

Tim Prizeman / Kewalin Evans, Kelso Consulting (PR advisors to BondMason)

 KevE@KelsoPR.com  020 7242 2286

Karen de Silva, Head of Brand Marketing, BondMason

Tel: +44 (0) 1582 802 000

 

About BondMason 

BondMason is the UK's number one Direct Lending service exclusively for investors, enabling clients to achieve a positive return in every month since 2015. It carefully sources and filters attractive lending opportunities from across the entire UK Direct Lending market.

With access to more of the UK’s Direct Lending market than anyone else, BondMason’s experienced investment team conducts ongoing due diligence on the UK’s Specialist Direct Lenders and P2P platforms and has reviewed over 100 lending partners to date.  The team vets every loan using rigorous selection criteria, focusing on asset-backed lending and diversification to seek to minimise risk and achieve attractive risk-adjusted returns.

About the research

BondMason’s research was conducted in August 2018 by accredited market research agency DRG who interviewed a sample of 1,014 UK adults with at least £25,000 in money or investments (including, if they have them, a private pension fund and second property).

Regulatory bit

Capital is at risk. Nothing in this article shall be construed as advice. Please contact your Financial Adviser to determine if Direct Lending is a suitable allocation for your investment portfolio. Please see BondMason’s full disclaimer and terms for details.

[i] Source: Bank of England Base Rate Data 2008 -2018

[ii] Source: BondMason analysis

[iii] Source: BondMason analysis.