Five years of 0.5% rates cost cash investors dear

4 March 2014 - Having had ultra-low interest rates for five years now, and the Governor of the Bank of England signalling that they will remain at their ultra-low level until after next year's election, we look at how taking on more risk would have rewarded savers in this time.

Cash has lost money in real terms

Inflation has been well above the base rate for the past five years, quietly eroding the value of money. Taking an average inflation rate of 2.5% over this period, £100 put into an account paying just the base rate five years ago, is worth the equivalent of around £88 today. Even with a slightly lower inflation rate of 2%, as expected by the Bank of England over the coming few years, the value of savers' money will continue to fall.

98% of retail funds beat cash

Those who took on more risk five years ago have been well rewarded. Of the 1,529 UK retail funds investing in assets other than cash, which have been available since 6th March 2009, 98%* (or 1,506) have beaten the return on cash over the past five years (to 13th February 2014), and that's after charges. Just 17 funds have produced negative returns.

This means someone could have invested in pretty much any fund, in any asset class, and done better than cash over that time.

Better than that, 96%* (or 1,470 funds) have returned more than 10 times cash over that time.
Now admittedly, the better-performing funds and sectors have been those with considerably higher risk profiles than cash. But lower-risk sectors have also given investors better returns: the average Strategic Bond fund returned 66%*, the average Mixed Investment 20-60% Shares fund returned 56%*, the average Mixed Investment 0-35% Shares fund returned 42%* and the average Gilt fund returned 17%.* All are much higher than the 2.5% cash return.
Past performance is, of course, no guide to future performance, and other asset classes may not do better than cash over the next two to three years. But we do think that cash savers should at least think about how they can get more bang for their buck.

Top funds over five years:

Fund Returns over five years
Cazenove UK Smaller Companies** 433.71%
Standard Life Investments UK Equity Unconstrained 426.75%
Fidelity UK Smaller Companies** 420.14%
MFM Slater Growth 352.67%
Investec UK Smaller Companies 342.83%

Top Sectors over five years:

Sector Sector average returns over five years*
UK Smaller Companies 222.66%
European Smaller Companies 185.05%
Technology & Telecoms 179.83%
North American Smaller Companies 168.51%
UK All Companies 141.71%

Bottom funds over five years:

Fund Returns over five years*
CF Ruffer Baker Steel Gold -23.63%
BlackRock Gold & General -14.07%
Marlborough ETF Commodity -13.92%
Aviva Investments Asia Pacific Property -12.31%
Investec Global Gold -11.37%

*Fund and sector performance data sourced from FE Analytics as at 13th February 2014.
** These funds are now closed to new investments
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time.

Published on 04/03/2014