In today’s budget the Chancellor, George Osborne said that the Bank of England Monetary Policy Committee’s target rate of inflation would stay at 2% while it looks like this long period of historic low interest rates will persist for the foreseeable future.
On top of this the Chancellor also indicated that the MPC would be given more leeway when setting interest rates so that it could take a more long term view of inflation. Something it seems to have been doing anyway so this might just be a formalisation of current practice.
However, the combination of interests rates of 2% and higher together with interest rates at near zero (and indeed talk of negative interest rates), can only bode ill for those with cash savings.
Even the best of the oft touted cash ISAs are usually returning no better than inflation, if you can find one that high of course. And if you are not getting the tax relief that an Individual Savings Account has to offer then you could well be losing money as inflation erodes the spending power of your savings over time.
To get a better return would almost certainly mean taking on a higher risk investment vehicle, something that the cautious and elderly may be unhappy to do.
Mark Henderson, senior partner at True Potential Investments, said that this was more bad news for people with savings in cash ISAs.
“Cash ISAs have been outstripped by inflation for some time and there are no signs that this is going to change – they exist only to boost the banks. It is nigh-on impossible to achieve a rate of interest on cash ISAs that won’t cause the value of an investment to diminish.
“They are an increasingly irrelevant product yet remain popular because people are unaware of the poor rate of return. We hope the announcements made in the Budget will help encourage investors to seek proper financial advice to help their wealth grow, not diminish.”