Decade Of Rock Bottom Rates Leave Savers In The Red

Savers with cash in the bank have seen their nest-egg ravaged by inflation and interest rates over the past 10 years.

Anyone with money stashed in a bank is in the red, according to a new study.

Financial wizards at online financial platform Hargreaves Lansdown have calculated that £1,000 saved in 2007 is now worth just £878 in spending power.

Had they invested the same amount in the stock market, the return over the decade would have been £1,323 after adjustment for inflation and a 50% fall in the FTSE after the financial crash.

The company says £180 billion is languishing in bank accounts paying meagre interest rates that are less than inflation, which is running at around 2.5%.

Inflation since 2007 has added up to 26%.

Borrowers are real winners

The real winners are borrowers, who have seen interest rates on mortgages and personal loans plunge over the same period.

At the start of the decade, home loan rates averaged 5.8% but fell by more than half to around 2.6% now. Homeowners hold around 7 million mortgages.

Over the period, personal debt has risen from £191 billion to £199 billion.

Laith Khalaf, the firm’s senior analyst, said: “While cash savers have undoubtedly felt the pinch from lower interest rates, there have been benefits for borrowers which have helped support the economy.

“Unsecured consumer borrowing rates have fallen too. The result was much lower levels of consumer loan defaults.

No respite for savers

“UK lenders have written off £2.5 billion of bad consumer loans over the last year. This compares to £6.8 billion in 2007.

“The good news is household income has also risen over this period, which along with low interest rates make this debt more affordable.”

According to financial monitor Moneyfacts, the best interest rates on cash savings are 1.11% on easy access accounts with the Bank of Cyprus, Tesco Bank and the Post Office. The minimum investment is just £1.

Fixed rates over five to seven years are between 2.42% and 2.55%, but tie up as much as £25,000 for the term.

The Bank of England base rate is 0.25% and is expected to hold at this level for some time due to fears over how Brexit may impact the economy between now and March 2019.