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FTSE 100 tracker returns lag top cash savings rates in 2018

Paloma Kubiak
Written By:
Paloma Kubiak

Investors depositing money in a FTSE 100 tracker at the start of 2018 would have made a return of just 0.2%, far below the interest rates available from top cash savings accounts.

The FTSE 100’s performance so far this year has been ‘patchy’ but the index is on track to end the week up 1.1%.

While this will bring relief to investors, it isn’t enough to compensate for its performance in the last six months, according to Russ Mould, investment director at AJ Bell.

He said cyclical sectors and turnaround plays did best in the first quarter of the year while some groupings were boosted by takeover activity, in automotive and parts, and GKN fought in vain to stave off a bid from Melrose Resources.

Mining, industrial transportation, chemicals, general industrials, and forestry and paper were all the fore, he said.

But the picture was quite different in Q2. Mould said: “Defensive or perceived ‘value’ areas like oil and gas producers, food producers, aerospace and defence, and beverages did best, while the return to favour of support services owed much to the consistency of earnings and dividends at Compass and Bunzl, despite the headlines made by other sector members, such as Carillion.”

Mould added: “Sectors such as utilities, telecoms and tobacco remained in the doghouse in the second quarter as issues such as the cost of 5G network roll-out weighed on telecoms, and regulation and doubts over next generation volumes held back tobacco.

“But the loss of faith in financials is quite noticeable. Life insurance and banks plunged into the list of the ten worst performers for the second quarter, while house builders and real estate plays also did badly.”

However, given the 0.2% return from the FTSE 100 tracker, Mould said stock market investing is a long-term game so investors shouldn’t put too much emphasis on a six-month period in isolation.

“It is also worth noting that unless you are solely invested in a FTSE 100 tracker, the capital returns and dividends from your specific stock selections are likely to differ from the headline index returns.

“It is therefore important to look at the underlying sector performance within the index and how that might impact on your portfolio selections,” he added.

Cash savings rates

Investing and saving are very different vehicles. But investment houses often tend to show the benefits of investing by comparing returns to the interest available on cash savings accounts. As you would expect, the potential returns from investing are much higher.

However, while savers have had to put up with a ‘lower for longer’ marketplace, cash savings rate have been on the up, and have even beaten inflation for the first time in months.

The current top rate for a one-year fix is 2.05% offered by Atom Bank while Coventry Building Society pays 1.35% on an easy access current account.

Anna Bowes, co-founder of independent savings advice site, Savings Champion, said cash is really considered a safe haven and savers never expect to get the same returns in the long-term as investments.

“We can’t compare apples with pears, but the stock market is volatile and you’re at the mercy and fate of the companies you’re investing in. However, when you look for the best rates for cash, you know what you’ll get.

“Interest rates have improved which means it’s easier and quicker to reach your Personal Savings Allowance. But you can also easily earn next to nothing, such as HSBC’s Flexible Saver which pays 0.05%.

“This is a good opportunity to remind people that they can do a lot better with cash. Being an active saver and making sure your money works as hard as possible is key. You can’t expect your money to do this by itself. Loyalty doesn’t pay when it comes to cash, so make sure your money isn’t languishing in a poor paying account.”

Related: See YourMoney.com’s Active and passive investing explained for more information.