Isa savings worth less than in 2011

SAVERS have suffered a lost decade, as new figures show that money left in cash Isas is now worth less than it was 10 years ago.

By leaving interest rates at record lows since 2009, the Bank of England has destroyed returns on cash.

On Thursday the Bank could make things worse by introducing negative rates, when its monetary policy committee meets for the first time since the third lockdown began.

Loose monetary policy has reduced £10,000 in the average cash Isas to just £9,772 in real terms, after adjusting for inflation in the last 10 years.

A saver who has used their entire cash Isa allowance each year since 2011 would have put away £127,320, but this would be worth just £124,857 in real terms.

If they had invested that money in the average global stock market fund instead it would be worth £196,079 in real terms, after inflation, according to new research by AJ Bell.

There seems no end to the agony as Bank of England data shows the average interest rate on cash since January 2011 has sunk from 2.2 per cent to just 0.4 per cent, a joint record low.

Low interest rates have turbocharged stock market growth, by encouraging investors to pour money into equities to get a higher return.

The last decade’s best performing Investment Association sector was IA Technology and Telecommunications, which would have turned £10,000 into £48,160.

Absolute return funds aimed at those who wanted to avoid stock market risk were also hit by low interest rates.The sector performed poorly, turning £10,000 into £12,427.

AJ Bell financial analyst Laith Khalaf said although shares will typically beat cash over a 10-year period, the last decade saw “extreme divergence” in fortunes: “Loose monetary policy has simultaneously depressed cash interest rates and boosted asset prices, in particular shares and bonds – the bedrock of most stocks and shares Isas.”

Many savers will be wary of putting money into the stock market now, as Covid-19 continues to wreak havoc.

IG senior market analyst Josh Mahony warned that the market is in danger of collapsing again, if vaccines prove ineffective against mutant Covid strains.

At the same time, cheap money is driving house prices to new highs, growing 7.6 per cent a year.