While these rock-bottom rates have lent a helping hand towards the economic recovery, they haven’t exactly appeased UK savers and investors.
However, many people have elected to stock with the safety offered by cash rather than accept more risk in search of higher returns. After six years, the opportunity cost of this has been high.
Alex Hoctor-Duncan, savings and investment expert at BlackRock, said: “Cash makes people feel safe and so we hold too much of it. If you are saving with income generation in mind, you need to own less cash when rates are this low and inflation, even at 0.5 per cent, is eating away at your money in the long term.”
“People are aware they hold too much cash. As the end of the tax year approaches, savers should think about using their ISA allowance to take steps out of cash and seek more effective ways in which their savings can provide an income to make their money work harder for them.”
It’s not surprising that financial experts are calling for people with cash to look elsewhere for returns. Savers who had £1,000 in the bank six years ago have seen this sum tumble to the value of £832 in spending power today, according to figures from BlackRock.
Research from BlackRock has also found that even those who chased the best cash ISA rates over the last six years have made lost out due to inflation, with annualised losses of 1.7 per cent being seen.
The MPC has set the stage for lower interest rates going forward after today voting for the base rate to stay at 0.5 per cent. Few see a raise as coming in immediate months.
One of the many financial experts who is unsurprised at the Bank of England’s decision to sit tight is Howard Archer, chief UK and European economist at IHS Global Insight.
He said: “As 100 per cent expected, the Bank of England maintained interest rates by keeping interest rates down at 0.5 per cent at the March MPC meeting. Indeed, as matters currently stand, it would be a major surprise if the Bank of England acted any time before late-2015.”
Families with mortgages and credit card debt can seemingly breathe a sigh of relief, but predictions on the outlook for rates are varied.
Maike Currie (pictured), associate investment director at Fidelity Personal Investing, said: “It’s unclear when interest rates are likely to move up – some pundits predict later this year, while others say it won’t move until 2016.”
“Either way, the return to normality is likely to be slow and shallow with the Bank of England opening the door to rates falling even further ‘towards zero.’ That means investors will continue to seek income wherever they can as cash just doesn’t cut it.”
Fidelity Personal Investing calculates that if a saver had invested £15,000 into the FTSE All Share index from the end of February 2005 for a 10-year period, they would now have £31,889.69.
In contrast, if they had invested the same amount of money into the average UK saving account over the same period, they would only have £16,321.36.
This produces the huge difference of £15,568.33, which is understandably unnerving for those who have tried to secure themselves a tidy cash nest egg.
Nick Hungerford, chief executive and founder of Nutmeg, said: “Savers have been feeling the heat for a long time now, and the fact that the Bank of England has kept interest rates stuck at an all-time low simply fuels the fire.”
“Inflation has also been taking its toll on the value of money, and as a result it feels almost impossible to get worthwhile returns from cash at the moment.”
He said that, while the government has taken steps to encourage people to save by raising the ISA allowance to £15,000, more needs to be done.
He added: “Whichever party comes into power in the May general election should make it a priority to help beleaguered savers and give them more of a reason to stash their cash in savings and investments.”
However, until then it seems that this income famine will continue to punish those who have tried to do ‘the right thing’ by saving their cash.
However, on a far more promising note, there is some hope that interest rates will rise sooner than some people expect.
A UK update from Capital Economics predicts that a rise in interest rates before the end of the year remains on the table.
The report forecasts a mild bout of deflation to begin imminently, which could see the MPC move quickly towards raising rates.
Samuel Tombs, senior UK economist at Capital Economics, said: “Our data suggests that there is little risk of this deflation becoming entrenched.”
“The 5.4 per cent annual rise in retail sales volumes in January showed that households are not putting off consumption.”
“Meanwhile, annual growth in average earnings picked up from 1.9 per cent to 2.4 per cent in December and most surveys point to a further acceleration ahead.”
While it seems that deflation won’t be a long-term fixture, the MPC has stressed that it will respond to this deflation with more stimulus if warranted.
This could also be cause for concern because, if a bout of QE were to be introduced, this could take its toll on the valuation of money.