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Poor returns on cash

Investment

Investors are getting a raw deal on the returns on cash. We can show you how to get a better return

A recent report from one of the UK’s investment providers makes gloomy ready, especially if you have held large amounts of cash deposits for the last few years. This year marks seven years of the Bank of England Interest rates at 0.5%. The report confirms that over this period the average return on cash Isa’s was just 1% p.a.

The analysis of average annual cash ISA rates shows an average cash ISA saver has received just 6.8% over the seven-year period since interest rates were cut by the Bank of England.

Even though inflation is currently low the report reveals that in four of the last seven years Cash Isa savers have lost money in real terms as the return they have received has been less than the rate of inflation.

The report shows someone who has used their full allowance into the average cash Isa investment would have saved £24,911 since March 2009 and seen it grow to £26,272. The gain of £1,729, a 6.8% return before inflation.

Annual average cash ISA rates have at the highest point been up to 2.8% and have been as low as 1.4%. Inflation on the other hand has ranged between 4.48% and as low as 0.04%. In 2010, through to 2013 inflation was higher than average cash ISA rates.

Although inflation is expected to increase over the next few years, that does not mean to say the returns on cash will improve.

Investors need to be aware if we have a few more years of low inflation and low returns on cash then they could be faced with a whole decade whereby the total return on cash is less than inflation over the same period. A question I would always ask savers is whether they want the return on their investments and pensions to at least keep up with the rate of inflation. If the answer is yes, then it might be worth discussing the issue with your financial advisor.

Alternatively, you can look at the Moneyfacts site to find the best rates.

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