Warning about the perils of leaving your savings locked up in low-yielding cash accounts is one of our favourite pursuits here at The Motley Fool.
The potential returns on such investment vehicles are quite paltry compared with, say, participation in the stock market. And the situation is particularly precarious right now as the rate of inflation bounds past even some of the best-paying accounts.
Interest rates have been edging higher in recent weeks in response to recent Bank of England benchmark rate hikes. But as yet Britain’s banks and building societies are showing no desire to start rewarding savers with decent rates, or even to raise rates at the same pace as The Old Lady of Threadneedle street has been.
Indeed, latest data from Moneyfacts suggests that those interest rates offered to new savers are generally worse than those on closed accounts.
According to the comparison websit’s Moneyfacts UK Savings Trends Treasury Report, the average rate paid on non-ISA closed notice accounts — i.e. those savings accounts which no longer accept new depositors — currently stands at 1.04%, higher than the 1% offered on corresponding open accounts.
The story is the same for accounts with no notice period. For an open easy access product the rate averages 0.64% right now, lower than the 0.66% offered up for closed accounts.
Is the tide turning?
This phenomenon is not new, though. As head of press Darren Cook commented in the report: “During the past three years… the rates on these closed accounts have been superior on average to the rates paid on products currently open to new customers.”
But the difference is beginning to narrow — for instance, the average rate on closed notice accounts two years ago stood at 1.09% versus 0.62% for open accounts, clearly much larger than the deficit as of today. And for closed easy access accounts, the average rate sat at 0.6% in November 2016 versus 0.41% for open products.
And this is leading to speculation that things could be about to change. As Cook commented: “Since the Bank base rate has begun to rise, margins have started to narrow. If this trend continues and the Bank base rate continues to rise, the open savings account average may well become the dominant rate.”
Invest like a pro
But so what? Sure, interest rates on new accounts may tip ahead of those for closed products in the next year or two, but they are likely to remain around rock bottom. On top of this, the difficult outlook for the UK economy means that the Bank of England may actually be forced to cut benchmark rates again in the next year, a catastrophic scenario for cash savers.
As I said at the top of the piece, I feel investing in the stock market is a much better way of getting your money to work for you. Indeed, with dividends sitting at record highs there has never been a better time to get involved in share investing, in my opinion.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.