Savers’ returns could fall by 62.5pc this year, says Sourced Capital
Embattled savers could see the rate of return on their current accounts fall by a whopping 62.5 per cent, new research from Sourced Capital has found.
The peer-to-peer lending platform looked at the average rate of return across a number of saving products over the 12 months prior to the coronavirus pandemic.
The Bank of England slashed the base rate to 0.1 per cent last month, having cut the rate to 0.25 per cent from 0.75 per cent only a week before.
Source Capital suggests that even lower interest rates could lead to an even bigger reduction in interest paid via different savings accounts.
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Its research shows that in the 12 months prior to the first reports of coronavirus in December 2019, the average instant access savings rate offered an average rate of 0.4 per cent, meaning that £1,000 invested would have returned just £4 over the course of the year.
However, based on historic rates offered the last time interest rates hit a low of 0.25 per cent in April 2016, the next year could see this rate of interest reduce to just 0.15 per cent, Sourced Capital said, reducing its yearly return to just £1.50 – a 62.5 per cent reduction.
Sourced Capital also predicts a 48.2 per cent drop in the average return from a variable rate cash ISA; a 28.7 per cent decline in returns from fixed-rate bonds; and a 25.2 per cent fall in the average returns from a one-year, fixed-rate cash ISA.
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“A very bleak outlook ahead for those trying to save, with many not only facing a reduction in income over the coming months but a pitiful rate of return on any savings they have tucked away,” said Stephen Moss, founder and MD of Sourced Capital.
“There’s a good chance you could accumulate more interest finding loose change on the street than you have via the mainstream savings products over the last year, and with a new record low in interest rates, this looks set to get even worse for the immediate future.
“Now more than ever, alternative products such as Innovative Finance ISAs can offer a better option and a more consistent return of between 10 and 12 per cent a year.
“While there is a risk involved in investing, this is arguably the only worthwhile way of making your money work harder for you in what is currently a very tough landscape. Leaving it sat dormant in a savings account, bond, variable or fixed ISA is the savings equivalent of putting it on furlough.”