Thanks to the financial crisis of 2008 the last ten years is gained the nickname of the ‘lost decade’ for savers in the UK, savers thought there might be light at the end of tunnel with an expected interest rate hike, but the bubble was soon burst this week when inflation figures swiftly and abruptly fell in June.
As DevDosh Ltd sees these interest rates have hung over savers like a dark rain cloud since the last rate rise way back July 2007.
“Savers may have felt that there was light at the end of the tunnel with recent talk of possible Bank of England rate rises, but realistically we are still well and truly in the tunnel,” says Damien Fahy from personal finance website MoneytotheMasses.
As far as DevDosh Ltd concern, the savers in the UK need to consider their options very carefully if they are to beat inflation.
Inflation is at 2.6%, up from 0.3% before the Brexit referendum.
Meanwhile, the best rate of interest available on an easy-access account is from Ulster Bank at 1.25%. The best five-year bond, from Paragon Bank, gives 2.45%, according to savingschampion.co.uk. In short, savers are in the red.
“Things are pretty dire for cash savers. Any significant rise in interest rates still looks some considerable way off and, to add insult to injury, inflation is rising, meaning cash in the bank is going backward in terms of its spending power,” says Laith Khalaf of advisers Hargreaves Lansdown.
There is some respite in that challenger banks – new smaller entrants to the market – are offering better rates than many of the high street institutions (NatWest’s instant saver, for example, gives just 0.01%). “You have no need to sit and earn such appalling rates from the high street,” says Anna Bowes, director of savingschampion.co.uk.
Financial advisers are of the opinion that it would be wise to spread the savings across different asset classes, and not put all your eggs in one basket so to speak
“You will need to keep some cash, but beyond this look to hold money in equity income investment funds, in fixed interest and even in absolute return or property funds,” says Connolly. “You’ll need to get a good mix … nobody knows what the future holds so if you spread risks you are more likely to protect your capital and less likely to get any nasty surprises.”
For those with a bigger appetite for risk and are looking to ‘play’ the stock market the key approach is to be able to hold your investments long-term.
“The stock market is risky, but it becomes less risky the longer you invest,” advises Khalaf. “As an example, even if you invested £1,000 in June 2007 – on the eve of the financial crisis – you would still be sitting on more than £1,600 now.
Darius McDermott of Chelsea Financial Services says investors need to be able to hold tight through rough periods. “For those taking a greater risk, you do need to be long-term investors. While markets have had a very strong performance since 2009, they can – and often do – go down for sometimes prolonged periods.
“If this happens, you must not panic and sell when you are losing money. You don’t actually lose money unless you sell,” he says.
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