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Tough year for savings after base rate cut

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It is one year on from the Bank of England’s decision to cut interest rates to record lows 0.25%. Research from Fidelity shows how it has dented your savings pot.

Its analysis shows that savers investing the full ISA allowance of £15,240 when rates were cut on 4th August 2016 into the FTSE All Share would now have an ISA portfolio worth £17,462.30.

This compares to £15,263.13 for the average cash savings account, a difference of £2,199.17 in just one year.

This is even more important as the rate of inflation has risen. Although inflation moderated in June, it’s still running at 2.6%. This means that in real terms, a £15,240 ISA allowance would have been worth £14,844 by the end of the year. Stock market investment has historically been a better way to protect long-term savings from inflation.

Maike Currie, investment director for personal investing at Fidelity International, said: “This week expect all eyes to be on the Bank of England’s ‘Super Thursday’ announcement for a steer on whether a rate rise is coming. However, it’s unlikely that the Old Lady of Threadneedle Street’s policymakers will be in any rush to hike rates from their current 300-year low, particularly following last week’s tepid second quarter growth of just 0.3% quarter-on-quarter, or 1.7% year-on-year. The Bank will be reluctant to risk the economic recovery with a premature rate hike, not least with the recent fall in inflation to 2.6%.

“Even though inflation has softened, long-term forecasts suggest that inflation will continue to sit above the Bank of England’s 2% target for the foreseeable future. With this in mind, and with interest rates set to remain at record lows for some time, investors need to look to the stock market to stand any chance of generating an inflation-beating return.”

See’s A practical guide to moving from a cash to stocks and shares ISA for more information.

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