It has been ten years since the Bank of England cut interest rates to 0.25%, and savers are still struggling to find alternatives to holding cash in low interest accounts, notes investment specialist BondMason.

On 8 October 2008, the UK interest rate fell to 0.25%, having been cut six times – rapidly – from 5%. While now only at 0.75%, BondMason calculates that nearly £2,000 per £10,000 of savings has been lost due to the drag of inflation.

Its research into 1,000 adults’ savings and investment behaviour found that, during the period, some 14.5% increased their cash holdings, “which is the one investment strategy that guarantees you will have lost money in the past decade and this is likely to continue in the future,” says BondMason CEO Stephen Findlay.

Inflation versus Bank Savings Rates (January 2006-February 2018)

Source: BondMason

Those investing £10,00 into fixed term bonds during the period would now have £11,434 in real terms after taking inflation into account.

“Investor confusion” was found to be one of the biggest problems for moving funds into different products or vehicles. Some 9% said they were unaware of the alternatives to bank savings, while another 22% said other options were too risky.

However, the depressed interest rate led to some activity. Nearly a quarter (23%) said they’d invested more in shares, while 15.5% had invested more in fixed term bonds.

Despite the amount held in bank accounts, only 24% said they felt an account was the safest place to earn a good return.

“Any further increases [in the interest rate] will be good for savers, but I don’t expect to see a return to bank accounts paying a decent positive return on savings any time in the foreseeable future,” added Findlay.

“My message to the millions of people with large amounts languishing in the bank waiting for better times is to instead to speak to a financial adviser and also start doing your own research. Otherwise, if you leave it there another ten years, you may well find the value of your savings has reduced even further through the hidden effects of inflation.”

Kevin Reed is one of the UK’s most senior accounting and finance journalists. He is a former editor of Accountancy Age and Financial Director, and writes regularly on corporate and professional services governance.

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