The Bank of England has increased Base Rate three times now since December, moves which have understandably led to plenty of warnings around the impact on mortgage borrowers.
However, one group of people should be somewhat encouraged by increases to Base Rate, and that’s savers.
After all, Base Rate jumps push up the returns banks and building societies offer on their savings accounts.
That’s the theory, anyway. In practice, the situation is sadly rather different.
According to analysis from Savings Champion and Moneyfacts, just eight providers have increased the rates on offer since the latest Base Rate increase.
They aren’t exactly the big high street names, either: Atom Bank, Aldermore, Secure Trust Bank, Al Rayan, Brown Shipley, Tesco Bank, Hanley Economic Building Society and Market Harborough Building Society.
Savers with certain accounts from high street banks and building societies will have seen rates increase, though only the accounts where such hikes are included in the terms and conditions.
In other words, unless the bank or building society has to move rates in line with Base Rate, it is likely dragging its feet over increasing the returns on offer.
It would be one thing if the rates on offer were already bumper. But let’s be honest, the interest rates provided are miserly, with many easy access accounts paying less than 0.3%.
At a time when inflation has already hit 7% ‒ its highest point in three decades ‒ and is forecast to increase yet further, this is damning.
Unless your money is earning a return greater than inflation, then it is losing value. As a result, saving your money in one of these accounts is essentially denting the power of your pounds.
Time to launch a new account
One antic that you often see from savings providers is to go down the route of launching a new savings account, rather than increasing the rates on their existing deal.
It means that they can get a bit of a splash with the launch of a new eye-catching rate (that’s the theory anyway), but the trouble is it leaves those savers on the older accounts in a tricky spot.
If they want to start benefiting from a better rate on the cash they have set aside, then rather than see the returns on their current account increase, they will instead have to go through the rigmarole of opening a new savings deal and moving their money over.
That’s clearly not a very customer-friendly approach, simply setting up ever more hurdles that prevent savers from getting much back.
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loveMONEY comment: savings alone makes little sense for most
Unfortunately, what’s pretty clear now is that you'll struggle if you rely on a traditional savings account to provide even a vaguely respectable return on your money.
You simply aren’t going to get anything back that’s remotely close to inflation, meaning your money is losing value.
That’s why it may be worth reframing the way you view these accounts ‒ it’s a place to keep that cash which you might need with little notice, that’s safer than sticking it down the back of the sofa.
There are some exceptions to this, of course. If you’re desperate to get onto the housing ladder or supplement your pension saving, then the top up you get from the Government on a Lifetime ISA is difficult to ignore.
In the main though, if you want to get a return on your savings, a traditional savings account is a hopeless home for your cash.
So what’s the alternative?
Realistically, if you want to get something back from your money ‒ particularly if you hope to even come close to matching inflation ‒ then you will need to accept some level of risk.
Sticking money in a savings account may be dreadful when it comes to the rate of return, but it is at least risk-free ‒ you certainly won’t lose cash doing it.
Putting your money in stocks and shares is undoubtedly riskier than that, but also likely more profitable, so long as you stick with it for a few years at least.
Over time those peaks and troughs tend to level out somewhat, whereas if you only invest for a year or so there is the potential for things to go rather more severely wrong.
As a case in point, someone who invested in an S&P 500 tracker fund at the start of the year would likely be down close to 20% at this stage.
However, had they invested five years ago, their investment would have grown by around 70%.
Past performance is absolutely not an indicator of future growth, but historically, holding investments over the long term will significantly outperform savings.
How should you invest?
If you are looking to try your hand at investing, perhaps the simplest way for savers to get a taste of investing is through a stocks and shares ISA, particularly going for an index tracker.
These attempt to replicate the movements of a particular index, such as the FTSE 100, so while you’ll never get market-beating returns, you also shouldn’t lag too far behind either.
Savers are likely to take a closer look at other assets beyond stocks and shares too.
I’ve no doubt that the poor savings rates on offer have played a part in the growing popularity of cryptocurrency, particularly among young people, though the level of risk involved is much higher than stock market investments.
Ultimately, the right asset for you will come down to how much risk you’re willing to accept, and how accessible you need the cash to be.
It’s one thing to sell a few stocks in order to get your hands on your cash, it’s quite another to have to flog a property if you’ve gone down the bricks and mortar route.