Savers miss out on £188bn worth of interest on their nest eggs, as they're hit by a 'miserable decade' of low rates

  • A top personal finance analyst says: 'We've lived through a miserable decade'
  • When the financial crisis struck, rates dropped sharply from 4.5pc to 0.5pc 
  • Currently, the best easy-access account on the market is offered by Marcus 

By James Burton, City Correspondent For The Daily Mail

Updated:

Savers have missed out on £188 billion of interest on their nest eggs in a lost decade since the financial crisis.

The stark figures reveal the impact of record-low interest rates and a vast money-printing programme by the Bank of England.

And they show the price paid by ordinary savers to prevent economic collapse following the 2008 banking crisis.

Savers have missed out on £188 billion of interest on their nest eggs in a lost decade since the financial crisis

Savers have missed out on £188 billion of interest on their nest eggs in a lost decade since the financial crisis

Sarah Coles, personal finance analyst at trading firm Hargreaves Lansdown, said: 'We've lived through a miserable decade for savers.

'The Bank of England slashed rates, and followed this up by offering enormous quantities of cheap money to the banks. As a result banks lost interest in competing for savings, and savings rates collapsed.'

When the financial crisis struck, the Bank of England cut rates sharply from 4.5 per cent in November 2008 to a then-record low of 0.5 per cent on March 5, 2009 – a decade ago today.

This was designed to cushion the economy by cutting the cost of borrowing for millions of businesses and mortgage customers, freeing up cash for them to spend.

However, it also drastically reduced the savings rates offered by banks. At the same time, the Bank also began pumping extra money into the economy by buying government bonds through a process called quantitative easing.

It has since doled out £435 billion, flooding the financial system with cheap cash. Other schemes allowed High Street lenders to borrow directly from the Bank of England at very low rates.

When the financial crisis struck, the Bank of England cut rates sharply from 4.5 per cent in November 2008 to a then-record low of 0.5 per cent on March 5, 2009 – a decade ago today

When the financial crisis struck, the Bank of England cut rates sharply from 4.5 per cent in November 2008 to a then-record low of 0.5 per cent on March 5, 2009 – a decade ago today

These programmes ensured the financial system kept functioning – but also marked a radical change from the traditional banking model.

In the past, banks relied on raising funds from the public which could then be lent out to borrowers – forcing them to compete by offering good savings rates.

But with so much easy money available from the central bank, there was no longer any need to chase savers for cash.

The result has been a plunge in returns. In September 2008, the average easy access account paid 3.08 per cent. Today, it pays just 0.54 per cent.

Savings rates have bottomed out and are starting to tick up again, after the Bank of England base rate was hiked to 0.75 per cent last August.

The best easy-access account on the market is offered by Marcus, part of Goldman Sachs, and pays 1.5 per cent. But this is still below inflation, meaning savers' money loses value every year.

There has also been a surge in money languishing in bank accounts that pay no interest at all, from £47 billion in September 2008 to £165.9 billion today.

Coles said: 'Without loose monetary policy we would almost certainly have been left in a much sorrier state by the financial crisis.

'There have also been beneficiaries of low interest rates, most notably borrowers, who have seen their mortgage payments fall substantially.

'However, it's savers who have paid the price.'

Although the Bank of England's actions led to a cut in mortgage costs, this fall in borrowing also fuelled a long boom in house prices which is forcing young people to take on record levels of debt to get on the ladder.

Some economists also argue that the cheap cost of commercial borrowing has allowed many 'zombie' companies which are loaded up with debt and unable to invest to stagger on, when it would be better for the economy to let them die and be replaced by more profitable firms.

Former pensions minister Baroness Altmann said: 'Quantitative easing has hurt millions of households, both savers and borrowers.

'The side effects may be feeding popular disaffection with the entire capitalist system – most particularly among the younger generations.' 

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