10 years since an interest rate rise: how savers have lost out

Those with cash in the bank have now seen a decade of falling returns. We take a look at how cash savers have lost out.

When interest rates were cut to an (at the time) historic low of 0.5 per cent, nobody in their right mind would have predicted that nearly a decade later rates would remain at rock-bottom levels.

However, today (5 July) marks the ten year anniversary of the last time there was an interest rate rise in the UK.

Below, with the help input of Hargreaves Lansdown and Chelsea Financial Services, we run through how inertia has cost savers dearly.

Cash savers – how they have lost out

Those with cash in the bank have now seen a decade of falling returns. The extent of the decline is laid bare by research carried out by Hargreaves Lansdown, who worked out that £1,000 stashed in a typical instant access account in July 2007 would now be worth £1,107.

This, however, fails to take inflation into account, which has risen by 26 per cent over the past decade. When inflation is added into the calculation the real value would today be £878.

By comparison the same £1,000 investment in the UK stock market in July 2007 would now be worth £1,666, falling to £1,323 after factoring in inflation.

Laith Khalaf, senior analyst at Hargreaves Lansdown, adds: ‘This is a pretty astonishing result, seeing as this investment would have been made just as the UK stock market was about to fall by almost 50 per cent as a result of the financial crisis.

‘These figures highlight the healing power of time on stock market returns, even if you happen to be unlucky enough to invest just as conditions take a turn for the worse. The figures also demonstrate the toll taken on cash in the bank by such an extended period of low interest rates.’

- Here's why household saving has fallen to 50-year record low

How investors have fared better

In terms of actively managed investment funds, investors who backed one of the 10 top-performing UK equity funds since March 2009, when rates were cut to 0.5 per cent, would have pocketed returns of 400 per cent plus, separate research by Chelsea Financial Services shows.

The top performer over the period is MFM Slater Growth, which would have turned a £1,000 investment into £6,529.50, up to the end of May.

UK funds across the board have fared well. Investors in the average UK all companies fund, which may invest across the entire UK main market, would have seem seen their £1,000 investment grow to £3,081.72.

Meanwhile, those who consider themselves as more risk-averse than the average investor, could have seen their money almost double through fixed interest holdings, with the average strategic bond fund turning £1,000 into £1,933.10

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