News
£10k in high street savings account will shrink to £9,800 in two years
A toxic environment of low interest rates and rising inflation means £10,000 saved in a typical high street savings account will be worth £9,800 in just two years, according to analysis.
Savers putting £10,000 into an average two-year savings account paying 0.90% will see their money shrink to £9,819 in purchasing power at the end of the fixed term, assuming the Bank of England (BoE) maintains its current inflation and interest rate forecasts.
A deposit of £10,000 in an average one-year fixed term savings account earning 0.74% will be worth just £9,933 in real money when it’s withdrawn 12 months later.
The research from peer-to-peer platform Octopus Choice also found smaller deposits of £5,000 and £1,000 made today in a fixed term account would be worth £4,966 and £993 respectively if withdrawn a year later and £4,909 and £982 if withdrawn after two years.
Break even
In order to break even, savers wanting to tie their money up for one year would need a product paying a minimum of 1.41%, some 91% higher than the current average offering of 0.74%.
For two years, their money would need to be in an account paying 1.81% to break even. But at 0.90%, the average two-year fixed savings account falls short of this amount by 101%.
Richard Wazacz, head of Octopus Choice, said: “People are well aware that the returns on the average high street savings account are negligible, but are they aware that their savings will actually fall in value in real terms over the next 12 and 24 months? And it could get even worse if inflation rises faster than current forecasts. After the latest inflation data, that certainly seems possible.
“The conclusion’s clear: for those who want to make their excess cash work harder, they’ll need to look beyond the bank. It goes without saying that anyone looking to better their returns by investing should pay close attention to the risks involved. But people also need to wise up to the very real ‘savings risk’ that they now face. For savers, times have arguably never been as tough.”
What are your options?
Research published yesterday revealed that less than half of savings accounts on the market can beat or match inflation. There are options available to savers, however it may mean moving up the risk spectrum, such as opting for investing or peer-to-peer lending. See our article for full analysis, including the risks and benefits of each.
