UK savers in cash ISAs losing out on £26.7bn in interest with inflation at 40-year high

by | Nov 26, 2022

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UK savers holding cash in cash ISAs are experiencing wealth erosion at the fastest rate in over 40 years. Overall savers are losing out on £26.7bn in interest payments with UK inflation at a 40-year high of 11.1%, says Bowmore Asset Management.

Savers in cash ISAs are earning just £5bn in interest, with the current average interest rate for all open cash ISAs standing at 1.74%*. This is only a small fraction of the £31.7bn in interest payments that savers would need to keep pace with inflation and indeed, for their money to retain its current purchasing power. In total, £285.5bn in currently invested in cash ISAs in the UK.

These savers are rapidly losing money in real terms as the value of cash is rapidly eroded during periods of high inflation. Cash is considered to be one of the worst performing asset classes in times of sharp price rises. Investors should consider alternatives that can better protect the value of their long-term savings against soaring inflation.

In times of such high inflation, there are areas of the economy that actually benefit, for example energy companies as price of natural resources (commodities) increase, and major banks as interest rates rise (to combat inflation) benefit from earning more on the funds they hold on deposit. Investments either directly or indirectly into these sectors have been referred to as inflation trades (or inflation hedges.  


Investing in the stock market and incorporating inflation trades, for example through a stocks and shares ISA, can help savers preserve the real value of their savings by providing a level of growth that can keep up better with inflation.

Over the long-term, the stock market has provided a return significantly above the rate of inflation. For example, the FTSE 100 has increased by 535.8% over the last 38 years**, comfortably higher than the average yearly inflation rate during the same period (3.6%).

Inflation has accelerated across the global economy, forcing central banks to hike interest rates in response. Yet, despite the Bank of England’s decision to increase interest rates to 3% in November 2022, the rates on savings accounts and cash ISAs still lags significantly behind the Bank of England’s base rate. This increases the need for savers to seek alternatives to cash if they are to maintain the value of their wealth.


Charles Incledon, Client Director at Bowmore Asset Management says: “Savers holding cash are failing to use all the weapons available to them in the fight against inflation. Cash has long been regarded as a poor option for savers during periods of high inflation and this time is no different.”

“A more sensible alternative is to diversify what they own and invest some of their money into shares. A Stocks and Shares ISA provides the benefit of tax-free investing with the current ISA allowance enabling investors to move/top up an ISA by up to £20,000 a year.”

“Whilst many investors still have concerns about investing in the stock markets following a sustained period of downwards pressure, the markets currently represent a significant discount when compared to 12 months ago. In other words, you can now buy stocks and shares at a much lower price.”


“It is important to remember that good companies do not become bad companies overnight, and companies that were well positioned to weather the current economic storm offer investors significant opportunities when investor sentiment improves, and shares prices rebound.”

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