The real returns on cash savings


When we save or invest money, a common goal is for it to grow faster than prices are rising, or at least as quickly. This is because we know that inflation erodes the value of cash – in other words, reducing what can be bought with a £1 coin or £20 note over time.


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Beating inflation can be easier said than done, however. Since the financial crisis, interest rates on bank savings have been at or near record lows, meaning cash savers have often not been rewarded for their prudence.

Despite the Bank of England raising base interest rates from their record low of 0.25% since 2017, this looks unlikely to change quickly.


For most of the past decade, cash savings have typically lost value after we factor in the effect of rising prices.

By looking at the average interest rates on cash savings, as offered by UK banks and buildings societies, we see that they only surpassed inflation – as measured by the Consumer Prices Index (CPI) – in only 18 months over the decade.

Between 1 December 2008 and 30 November 2018, net interest rates – after subtracting CPI – averaged minus 1.6% a year. This means £10,000, saved in an average instant access bank account a decade ago, would be worth just £8,550 today after the effects of inflation.

Cash has its place

Keeping a cash buffer for contingencies is always sensible, and saving in cash can be the most appropriate choice if you’re unwilling to take any investment risk. Unlike other investments, where your capital will be less secure, savings of up to £85,000 held in banks or building societies are protected under the Financial Services Compensation Scheme.

It is important to remember, however, that relying excessively on cash savings could prevent you from achieving your long-term financial aspirations. This is especially true at a time when inflation continues to outpace interest rates, eroding what cash is really worth.

A checklist for savers

  • Check the interest rate on your cash savings – how does it compare to inflation?
  • Evaluate how you allocate your savings – are you over-relying on cash to realise your
    long-term goals?
  • Consider the full range of options – could putting some, or more, of your savings in
    investments such as bonds, company shares or property be a better way to put your money
    to work?

The views expressed in this document should not be taken as a recommendation, advice or forecast. We are unable to give financial advice. If you are unsure about the suitability of your investment, speak to your financial adviser.

When you're deciding how to invest, it's important to remember that the value of investments goes up and down, and you may not get back the original amount you invested.