If there’s one asset we all definitely hold, it’s cash. So it’s odd that there isn’t a long-run cash index available – one that we can use to compare other investments against.
Academics approximate returns to cash by resorting to treasury bill or money market rates. But what might a savvy UK investor have achieved with money in the bank?
Monevator is devoted to DIY investing after all, and so an everyday cash savings index would better reflect the experience of individual investors. It would also form a useful reference point for future expectations.
And so without further ado (I’ve always wanted to say that!) I present the Monevator cash total returns index.
A UK cash savings index
Our new cash index tracks the total return of UK savings accounts based on monthly interest rate figures going back to 1900.
I’ve relied upon three sources:
- Pre-November 1939: the Bank of England’s A Millennium of Macroeconomic Data.
- November 1939-March 2004: the Building Societies Association’s BSA Yearbook.
- April 2004-present day: Money Saving Expert’s amazing email newsletter archive.
My profuse thanks and additional hat-tips go to Monevator readers Alan Stocker, who suggested using the BSA and MSE sources, and Snowman, whose ongoing comments provided the motivational juice to plough through scads of dusty old interest rate records.
I’ll explain the decisions I’ve made in constructing the index at the end of the article. But first it’s high time I presented the facts on cash savings in the UK.
Spoiler: they’re not pretty.
The money illusion
The green cash uplands shown in the graph below represent the comforting sight of interest piling on interest. But the wavy red line that goes more or less nowhere is the return on cash after inflation:
Data from Millennium of Macroeconomic Data for the UK, 1Building Societies Association (BSA) Yearbook, Money Saving Expert, and ONS. April 2026.
The annualised real return on UK cash savings is 0.1% for the period 1900-2025. Miserable!
It’s a performance that stacks up poorly against other mainstream asset classes:
- The money market annualised return is 0.4% (0.3% after fees)
- All stocks gilts is 0.8% (0.7% after fees)
- World equities is 5.6% (5.5% after fees)
In a nutshell, those returns and the chart above explain why we urge readers not to put everything into cash. The green stuff barely scrapes past against inflation over time.
Of course cash is not the worst place to be over some shorter periods, as we saw in 2022. And there are good reasons to always keep some readies in reserve.
However holding a large wedge will likely cost you as the years turn into decades.
The silent hissing of a slow puncture, or the quiet boiling of that unlucky frog come to mind.
Hard times
The next chart highlights cash’s longest losing streaks in real terms – including a 72-year whopper:
We’ve shared some godawful charts over the years on Monevator. But this one is right up there.
The red zones show you the length and depth of cash drawdowns, as viewed through inflation-adjusted googles. They demonstrate that cash can be a perilous place to store your wealth if you overly rely on it.
The same is true of all asset classes, admittedly. But cash is deceptive because it looks so stable in nominal terms.
However as the chart shows, cash can periodically inflict huge losses – and the culprit isn’t hard to find:
As we’ve all experienced lately, the cash-gobbling monster of inflation isn’t a blight that’s faded into history like smallpox, or grit in your codpiece.
Cast your eyes back to the cyan growth line in our chart above. Cash has only performed well in real terms over a few short periods: namely 1921 to 1933 and 1982 to 2008.
On both occasions you could have done better in bonds.
The not-so-flash crash
Here’s the full drawdown chart for cash’s nastiest ever bear market.
The record shows:
- Cash spent over 72 years in negative territory
- It took 48 years to sink to the bottom
- Losses peaked at -58% in April 1981
- The recovery took another 24 years until December 2005
Money markets experienced similarly severe losses. UK government bonds suffered an even deeper, if shorter, drawdown. (See our previous retelling of the tale of the UK’s worst ever bond market crash. Prepare a stiff drink.)
Essentially, successive UK governments failed to control inflation. That wrecked the real returns from fixed income assets.
The red gouge above partly explains why my grandparents – born around 1910 – were so hard up. All they had were savings with the Post Office. But whatever they put away was murdered by inflation. Especially in the early 1940s, the early 1950s and, most savagely, in the 1970s.
Yet go back to the first chart in this article and cash’s nominal return curve betrays no hint of these losses that lasted a lifetime.
Cash after the Global Financial Crisis
Let’s fast forward.
The competitive savings market we enjoy today was unknown to previous generations.
British savers had few options until the cosy arrangements of our banks and building societies were broken up by deregulation from 1987 onwards.
Two decades later, the retail savings market was flourishing on the eve of the Credit Crunch, as documented by Money Saving Expert’s empowering weekly emails.
Easy-access rates topped 6% as the first rumbles of the oncoming storm rolled across the consumer landscape in 2007. 2
But within a few months, Britain experienced its first retail bank run in 140 years. Keystone institutions teetered, and the economy locked-up.
The Bank of England cut rates to historic lows, and real cash returns fell into the red:
Since January 2009, cash has been under water for all but one month up to the time of writing. That’s 17 years of drawdown and counting.
The chart shows that cash wasn’t a save haven either when interest rates were slashed to near-zero, nor when they rebounded post-Covid.
Indeed, the jagged plunge to the latest cash trough (-15% in May 2023) was a direct consequence of the 2021-23 inflationary surge. The only good thing about cash during the recent cost-of-living crisis was its drawdown wasn’t as bad as bonds.
Frankly, neither cash nor bonds are the place to be when inflation breaks loose.
Please read our previous hunt for the best inflation hedge for more.
Conflict of interest
Before I embarked on this project, I had thought a fleet-footed saver may have beaten money market rates. But the data says otherwise.
The next chart shows how British savers have mostly lagged the official Bank of England rate since 1900. (Money market returns usually track the central bank rate like a lovelorn teenager):
There’s a lot of economic history packed into this chart, but the takeaway is that savers have only outperformed the going rate during two eras.
One was upon the outbreak of World War 2 up until Churchill’s re-election as Prime Minister in October 1951.
The other shows up in the MSE era of consumer choice from 2004. Up until the Global Financial Crisis, the green cash rate tracks ahead of the red Bank Rate as savers were offered very generous terms – the likes of which haven’t been seen since.
The Bank Rate is then slashed from 5% in September 2008 to just half-a-percent by March 2009, as the scale of the crisis became clear.
Still, if you kept your job, a chunky rate tart’s premium emerged as different banks and building societies needed to suck in cash periodically to balance their books.
Switching to whichever institution was most in distress at the time was perhaps not my soberest ever financial move (reader, I was a rate tart) but hey, the British Government was playing backstop so it seemed okay.
In my view though, the savvy saver’s edge has hardly been worth the effort since 2022, though the premium perked up a little in 2025 – as you can see at the tail end of the chart.
Inside the cash total return index
There were a surprising number of decisions to make in assembling the index – specifically in the MSE-powered ‘best buy’ era.
The most important thing to say is that the index is composed of the compound interest rates for short-notice savings deposit accounts.
Up to October 1939 – We use the ‘Interest rate on sight deposit accounts’. The Bank of England defines a sight deposit account as:
…where the depositor has access to the entire balance of the deposit, without incurring any penalty, either on demand or by close of business the day following that on which the deposit was made.
November 1939 to March 2004 – Interest figures come from the rates on ordinary shares accounts provided by the Building Societies Association. An ordinary shares account was just a standard savings account accessible using a passbook. (Ask your grandparents. Or me! I had a Post Office passbook account from childhood until I looted it as a desperate 21-year-old trying to make rent.)
April 2004 to present day – The best interest rate collated by Money Saving Expert at the end of each month, provided the account fulfils the following criteria:
FSCS protected (or European equivalent schemes prior to Brexit).
95 days or less notice required. This provision bears comparison with historical treasury bill rates which are typically for 3-month bills.
Introductory rates are included so long as they last at least six months.
Exclusions:
Cash ISA accounts due to historically severe caps on balances.
Fixed term rates – these accounts are subject to interest rate risk.
Accounts that limit withdrawals to fewer than 12 per year or impose interest rate penalties for withdrawals.
Minimum deposit requirements of greater than £1,000 or a maximum balance of less than £85,000.
Current accounts, because they’re typically subject to restrictive terms and conditions including tight caps on bonus interest rates.
Exclusively postal or in-branch accounts.
Cash back bonuses.
Tax rates and fees as per standard practice for indices.
The notional saver
Indices by definition are based on a set of guidelines that simplify the real world in order to produce a snapshot of a market.
The Monevator cash total return index is based on what a switched-on UK retail saver could have earned on liquid cash savings from 1900 to the present day.
My notional saver paid attention to rates and moved their money to the best available product. But they did not use exotic or highly restrictive products.
They’re not the average saver, but neither do they have unlimited time and the motivation to pursue every savings avenue either.
Crucially, the index needs to be comparable with retail investment opportunities where an investor can commit almost as little or as much as they like to any given asset class.
For that reason, I’ve only admitted accounts that allow for low minimum balances and high maximum balances.
I’ve also ruled out fixed-term savings because they contain embedded interest rate risk. 3
In the modern era, financial institutions have come up with every wheeze they can think of to top the best-buy tables for long enough to hit their targets, whilst avoiding attracting so much cash that it craters their bottom line.
So I’ve had to filter out much of that fiendishness in order to balance the features of a genuinely desirable cash product: liquidity, accessibility, and competitive interest rate.
Finally, I’m not making a claim about what any individual could have earned. The index is beatable if, for example, you took term risk at the right time, or used interest-boosting techniques like current account stacking.
(Current account stacking enables a saver to jack-up their return – and partially circumvent balance caps – by opening multiple accounts that pay sweet rates of interest on restricted amounts of cash. Perhaps you opened ten accounts, perhaps you opened 20. It was a viable strategy for juicing your cash returns in the ZIRP era. It didn’t move the needle as much as I hoped when I ran the numbers, though. But that’s another story.)
Alright, that’s it for now. I’m very much looking forward to the thoughts, reactions, and critiques of the Monevator Massive. And I reserve the right to adjust the index in light of any bright ideas you have!
Take it steady,
The Accumulator
- Thomas R, Dimsdale N. 2017. “A Millennium of Macroeconomic Data for the UK.” Bank of England.[↩]
- You could even bag yourself 8% on balances of up to £2,500 via an Abbey National current account.[↩]
- That is to say, adverse interest rate moves will leave you stuck in an uncompetitive product from time-to-time.[↩]
I always have to have a reasonable pot of cash in retirement for cash flow management and the unforeseen-new car,new roof etc
So works out at about 6% of portfolio -been this % for a long time
3 accounts only for simplicity’s sake
A high interest instant access bank account with interest rate producing just under tax free £1000 limit for a 20% tax payer-currently approx £20000 invested
2 Instant Access Cash ISAs -wife and I-currently Skipton BS
Aim for as high a rate as possible but I don’t fret the top rates as it’s a very competitive market and good providers keep me in the top rates as I renew contracts-often no more than yearly
Low returns compared with other assets but needed for sake of ease of cash flow management
PS might drop high interest bank account bank account but 2 sources for cash flow lets me sleep at night in case one source hiccups-cash flow cannot fail!
xxd09
Thanks for a really interesting post. I imagine most readers will be feeling either smug, smashed or sober after reading it.
Amazing to think that nobody, as far as I know, in the MSM/financial area has ever done this. Neither have I seen anything like it in promotional material from the ‘financial-services’or ‘snake-oil’ sector.
When I have absolutely nothing better to do I’ll add gold & silver to the chart for my own amusement. Quite a few regard those things as real money. Would they be smug, smashed or sober? I think we know.
Thanks for this really interesting article. In the past, I’ve been surprised by how difficult it was to locate a simple historical chart comparing prevailing interest rates with inflation.
Bright ideas are beyond me, but my initial takeaways are 1) that it’s somewhat heartening to learn that, even if not recently, historically it’s been possible to be in cash only and not actually lose money, and 2) that a simple money market fund might achieve a slightly better return while obviating the need for all the tiresome ‘rate tarting’. (Previous monevator caveats about money markets not being real cash duly noted.)
My dad (an accountant) wasn’t kidding in 1980 when he said his money wasn’t doing anything and he might as well buy that yacht.
Great stuff @TA. An amazing and highly original and valuable piece of research.
Cash is optionality but, just as options can’t pay off long term in aggregate (as there would then be no Equity Risk Premium); so cash can’t pay it’s way over decades either.
And if you go into cash then how and when do you get back in and at what levels? (I’ve faced this dilemma myself and it’s not fun even if you get the market exit to cash timing part broadly right).
I remember those N&I escalator bonds in the early 1990s which paid out a higher % each year. I think one I held had a final payment of 14.5% (and around 10% on average over the fixed term) but this was a looong time ago now.
I do also remember George Cole as Arthur Daley from ‘Minder’ advertising Leeds Building Society’s / Halifax’s Liquid Gold account on a double digit rate from around the same time. A classic of its era.
Thanks TA, a very interesting article.
I think cash has the following benefits that mitigate its relatively poor return
1. liquidity – it’s readily accessible
2. simple – very easy to manage
3. safe – if you split between institutions covered by the £120k FCSC
4. provides an incentive to decumulate – like BBB’s Dad, you know you’re losing money so why not spend it!
Very useful article. and an important reminder of its role. Thanks
Of course there are other (non return) isues such as taking greater risks with the equity part of portfolio, available for opportunistic investment, avoiding having to be a forced seller of equities when needing money of unexpected events, etc
I imagine some amount of cash as having an extra return from the saved premiums from allowing you to self insure more things (pets, appliances, even income protection), or have a higher excess or less cover at least on the things you do insure. That all said, you could cover a lot of that from unused available credit
Fantastic piece of work @TA! This article should be required reading for every young person starting their working career. I genuinely feel that the failure to understand the difference between nominal and real returns is at the root of lots of people’s problems when it comes to money (and houses). This article nails it. “Invest” £100 for 126 years and reap your £12 reward- that is so sobering!
Great work @TA, like others I don’t recall seeing anything like it anywhere.
I would have guessed that the real rate of return on cash was better – say 0.5%, based on DMS’s figure of 1% for the historical rate of return on bills. So it’s a salutary lesson (not that I needed one – I avoid cash like the plague, and don’t even have an emergency fund! (Don’t try this at home, kids.))
One question – for the “MSE era” wouldn’t restricting yourself to instant access accounts have been a better comparator? As you say, a 90-day access account is more comparable to bills. Although perhaps most accounts you surveyed were instant access anyway?
Great article and analysis. I’ve seen very few attempts to try and quantify real returns on savings.
The Barclays Equity Gilt Study gave figures for cash returns but as the journalist Paul Lewis pointed out this was not really based on the savings rates actually achievable.
Many people who have saved but never invested talk of the magic of compound interest. But price inflation compounds too. And when the two are very similar all you can hope to achieve over the long period with savings, based on the data in this article and my own personal experience, is to maintain the value of those savings over time but not much more, and you might not even match price inflation.
When they talk about encouraging people to invest and not just save this is the key point at play. That savings might at best just keep up with inflation if you shop around is not just a risk it’s a likelihood.
My analysis of my personal savings interest achieved since I kept records in December 2004 to April 2026 is as per this chart (1st of month monthly data).
https://ibb.co/wNYPR9jL
My monthly average savings rate are shown on the left hand axis together with CPI and base rate.
My real rate of return on savings at points in time is shown by the grey shaded blocks using the right hand axis. So you can see the fluctuations between positive real returns and negative real returns at different time points.
Overall from December 2004 to April 2026 my geometric average savings return above CPI inflation has been 0.6% pa. In fact it’s actually just negative if assessed against RPI inflation. Given the effort I’ve put in to maximise my savings interest its not much of a return. Of course that’s just my personal return.
Even if we can estimate the potential average future real returns on savings (or lack of them) from past returns the actual interest rates achieved by someone constantly switching to best buy rates depends greatly on the subsidy they are getting from savers who don’t swap around.
The FCA update on cash savings – September 2024 (published 18/9/2024) showed that the average easy access deposit interest rate paid by the the largest 9 firms (Lloyds Banking Group, HSBC, NatWest Group, Santander UK, Barclays, Nationwide Building Society, TSB Bank, Virgin Money UK, The Co-operative Bank) was 2.11%pa at the end of the second quarter of 2024. Base rate was then 5.25%pa and best buy savings accounts paid around 4.8%pa. How might that significant differential between average and best buy rates change in the future, and how might that affect returns on savings?
On this point are the Building Societies Association’s BSA Yearbook from 1999 based on the interest rates shown for example on pages 48-49 of the 2025-2026 yearbook and if so are they average rates and not best buy rates, so perhaps understate best buy rates, albeit shopping around was different in nature historically?
Great analysis!
Cash actually did a bit better than i expected.
Note that these returns are all pre tax. I suspect if you deduct tax at the basic rate (/marginal rate for someone on the average income) then cash does a lot worse. 1% say pa siphoned off by HMRC, over 126 years, equals a colossal hole in the real value of cash savings over time.
@TA,
Nice one.
Couple of thoughts: the effect of tax on interest, and, believe it or not, the UK cash interest rates are in my experience quite good vs, say, € cash interest rates.
I came across JPG’s annual update a few days ago (see: https://retireearlyhomepage.com/reallife26.html) – and IMO his 100% Fixed Income Pot tells you everything you need to know!
@TA
In terms of your rules on which accounts to include in the index, my main thought is that the important thing is that you have some rules to take out subjectivity and you keep the rules simple and reasonably consistent with the sort of returns someone shopping around might have achieved. By those criteria I think your rules work. I don’t think your rules should affect your savings index too much (by which I might mean 0.2%pa or more interest rate difference) compared with say other possible rules that didn’t for example have the 12 withdrawals exclusion. I am guessing the rules mainly apply to the period from 2004 when you used the MSE email data.
For reference here are my average savings rates on 1st of the month since December 2004 (the numbers on which the previous chart was based) which I provide in case they provide some sort of numerical example of the variation against your index of someone shopping around for best buy accounts.
https://ibb.co/gLVKMvdw
These do include some regular savers although they’ve never materially affected my rate I don’t think. They include some fixed rate accounts but typically but not always where I’ve used fixed rates the term is a year or less, and mainly I’ve used easy access. I did have some 5 year fixed rate accounts around 2009 to 2014 with Newcastle and Northern Rock (Virgin) that allowed penalty free access with 90 days notice so were great value as they gave me the option to exit if interest rates went up, in fact they went down. So they may have pushed up my savings rate around that time.
The other useful calculations I’ve seen on real savings returns was done by Paul Lewis. He used best buy 1 year moneyfacts fixed rate accounts as a proxy for best buy savings rates going back to 1995. So would be interesting to know how his figures from 1995 to 2004 compare with your figures up to March 2004 where you are using the Building Society sight deposit rates.
https://paullewismoney.blogspot.com/2025/05/actively-managed-cash-beats-inflation.html
@TA – excellent bit of work. A few comments
1) At times, tax would have made the returns even worse
2) The comparison with the bank rate and realised interest rates is an interesting (sorry!) one, particularly, as you say, since the 3 month bill (which is related to the bank rate) has commonly been used in backtesting as a proxy for cash. Given that banks lend at one rate (e.g., mortgages) and, to make a profit, borrow from savers at a lower rate it is perhaps not surprising that for much of history savers got a worse rate. The challenger banks appear to be lending commercially ( i.e., not domestic mortgages) so are able to lend and borrow at higher rates.
3) An interesting article on the history of the Treasury Bill (https://www.bankofengland.co.uk/quarterly-bulletin/1964/q3/the-treasury-bill) suggests that the general public could buy treasury bills at auction or from the market, at least up to 1964 (when the article was written), a facility that has only recently(?) been restored.
FWIW, fixed income (including cash) is the only area where I indulge in active investing since I modify the overall duration according to whether I think rates will increase or not and whether the yield curve is inverted or not. The cash component is held in two 1 year fixed rate accounts (offset by 6 months – corresponding to how often we withdraw funds from the portfolio) which then has an average duration of 0.5 years (since it ranges from 0.75 to 0.25 years), which has a relatively small interest rate risk compared to bond funds with larger durations.
Thanks for the deep dive and like others impressed by the work & effort it must have took.One interesting point you made was that the competitive savings market was not available to previous generations (but i can remember the weekly visits to my school in the 60’s from the Post office were we could go and buy savings stamps which i think were a schilling but not quite the same) – but on the flip side neither was the investing market we have today and probably most in what you called working class would have said investing was not for the likes of us (i still have a father-in-law in his 80’s who says that now!) And probably the only products they had were endowment type insurance products & maybe monthly investment trust plans?
So the likes of my father returning after the war had no choice but to invest in cash but somehow by saving (very)hard and by his favourite word “overtime” he managed to buy a house in London and build up a decent even by today’s standards savings account with things like NS Bonds being a key player.And the only investments i know of were endowment plans with Pru and Liverpool & Vic the likes of BT.,British Gas & Abbey Nat shares later in life where he suddenly had a new favourite word – dividends.
Having read this article i am even more impressed how he and others of his generation actually managed to grow their money.
Terrific research and article! Kind of extraordinary that this didn’t exist until now.
I wonder how this would look in US dollars, or some trade-weighted currency basket… The heart shudders.
I spent too much effort over the years chasing marginally better interest rates on cash. Why shouldn’t advertisements for cash accounts have prominent health warnings, like those on investment products? Something like: “The value of your cash savings is almost guaranteed to fall over time.”
I guess that kind of warning would freak everybody out! Also, as the issuer of currency the government benefits from people holding cash so they’re hardly going to try to scare people off it. But if the government is serious about encouraging people to invest rather than save, they should start trash-talking cash savings.
@Snowman (#14):
FWIW, I have long been a fan of fixed rate accounts (often called savings bonds in the UK for some strange reason*) and if you ladder them you can address some of the risk. Having said that, and as you point out, cancelation terms (if possible at all now) are now much more punitive than they used to be. FWIW, we still have at least one that is paying 6%+.
*our US cousins sometimes call these things certificates of deposit (CD)
Thanks, all 🙂
I remain a big fan of cash – ever since I learned that building an emergency fund was a good idea, and better than spending every penny on cream cakes.
I’m minded of a great comment I saw on a PF blog wherein the author accused someone of blowing half their money on wine, women, and song. Some wag wrote in the comments: “What did they do with the other half? Waste it?”
It seems to me that owning a money market fund may well be preferable now to faffing about with best buy rates. Pity MMFs are about to get dinged from stocks and shares ISAs.
Alternatively, I could imagine owning treasury bills if a kindly broker would just automate everything. Perhaps Freetrade already have?
Some readers have lauded HL’s Active Savings account. Looks like their best easy access rate is currently lagging MSE’s by about 0.5%.
@DH – yes, I remember those ads too. Essentially, I learned everything I know about personal finance from Arthur Daley 😉
@Amtrakker – Yes, good point about the incentive to spend. With Oil Crisis III ongoing I’m thinking about expediting some spending I was otherwise putting off. Either that or sticking more in index-linked gilts.
@Matthew Ainsworth – your self-insurance angle is a really nice framing. I suppose we might describe it as an optionality premium.
@c-strong – I thought cash was going to be better too. DMS numbers always vary a bit from the datasets available in the public domain.
Re: instant access – the notice accounts only hold sway for quite limited periods. They don’t show up regularly at all until 2018 and fell behind the pace in 2025.
On balance, I’m happy to include them on a “swings and roundabouts” basis. For example, as a real world saver I might stick some savings in a best-buy interest-bearing current account, take advantage of a promotional rate on an ISA, stick a percentage in a notice account and the rest in easy access.
It’s impossible for me to model that complexity but I like the fact that the index benefits a little from all that savviness by admitting notice accounts.
@Snowman – Cheers! Yes, rules-wise it all kicked off in the MSE era as banks kept coming up with different offers to compete for the best-buy rate. Often I’d have to exclude an account with a 0.2% advantage or so because it penalised withdrawals, or only applied to the first £15.77 of savings between The Epiphany and Pancake Tuesday or whatever. I excluded current accounts due to too many T&C gymnastics as well.
Undoubtedly the BSA interest rates undershoot the Best Buy rate when that emerged. It seems that the savvy saver premium would have arrived after deregulation in 1987 and I guess the competitive savings market must have taken a few years to establish itself.
It’s a shame Paul Lewis uses 1yr fixed rates but I can compare his numbers (thank you for the link) with BSA 1yr fixed rates published from 1999.
Just eyeballing the numbers tells me there’s a Best Buy premium of 0.5-1% from that date.
The same is true when I compare MSE’s easy access rates from 2004 with the BSA’s ongoing easy access rates.
I wonder if MoneyFacts would be interested in sharing some easy access best buy data to cover the period beyond deregulation?
Beyond that I can also see that Lewis’s 1yr figures include a term premium on top. However, if I lock my money up in the Best Buy 1yr account for Jan 1995, I immediately take a hit when the rate goes up 0.5% in Feb 1995. We’d see that as a capital loss in a bond index but I think that detail is lost in Lewis’s account. Interesting to see his numbers though.
@Alan S – I dread to think what the after-tax returns would look like! Thank you for the link to the treasury bills piece. It wasn’t clear to me how accessible bills were to the general public before.
@Chris – I agree, I’m less inclined to put the effort in now, especially when I can stay there or thereabouts using other instruments.
I did model what all my current account stacking efforts achieved in the ZIRP era. The real return was around 0.4% annualised vs 0% for the Best Buy easy access rate. So not worthless but probably not worth it.
@No-one in particular – I do really feel for my grandparents looking at these figures. In the 1970s they’d have been getting over 8% at times but it would still have been a loser. Yet I guess they wouldn’t have known. I very much doubt they could have just looked up the rate of inflation, and what were they going to do about it anyway?
@TA
Thanks for your response. Interesting.
I started to research what was going on with the recommended rates shown in the Building Societies Association Yearbook. Please correct me anyone where the following is inaccurate. I realised I was completely ignorant on how it had all worked.
Apparently until about 1980 building societies operated pretty much as a cartel, with rates of interest recommended by the Council of the Building Societies Association being followed closely in practice.
Between about 1981 to 1984 the cartel started to break down. This was in part due to competition from retail banks which ended the monopoly of the building societies. As a result building societies started to offer term share accounts with higher rates than the BSA recommended rates.
After Abbey National (the second largest building society) announced its intention to withdraw from the system in 1983, the BSA switched to advising on rates rather than recommending rates.
In 1984 the BBA involvement further reduced with their advice relating to the timing of changes and eventually it all came to an end from 11 April 1986 when the BSA stopped recommending or advising on rates. And of course much wider reaching changes occurred under the Building Societies Act 1986 with building societies greatly extending their activities and many demutualising.
So as far as I can tell the building society rates up to about 1980 probably reasonably reflect the interest rate a savvy squirrel might have achieved (i.e the recommended rate that forms part of your dataset) but gradually from then onwards better rates became available than the BSA interest rate figures, which are average rates after April 1986 it appears.
@TA
Again a great piece of work and your comment about grandparents earning 8% and still being a loser does make you think.Many would have raised probably in some cases a larger family and also gone on to buy a house,all this with no real way of investing for most with many not even having a bank account but just a pass book from a Building Society or Post office.
To most the doorstop collectors from the Pru or Liverpool Vic etc were the only way they could invest and who they trusted but mainly “cash is king” seems to have been the motto (my dads idea of investing until the free shares give away’s was endowments & PO IL Bonds which i think had a small percentage on top of the rate i believe?).
Even to this day and with many conversations my father-in-law does not chase rates and i have given up trying to explain the drawbacks of inflation on his savings as he refuses to believe he is losing money and just says my money is safe and i never get less back then i put in so how am i losing! (maybe i will let him read this article but not sure it will work)
“the unforeseen … new roof”: aye, ours cost £40k. Thank God for cash.
I see three advantages in cash worth mentioning.
1. If you are old do you really want to risk a serious loss on shares if you suspect you might well be dead before the recovery?
2. I enjoy leveraging cash: stoozing, for instance, or withdrawing money from flexible ISAs to put into high-yielding regular saver accounts, paying the ISA back when the saver matures.
3. But, you may object, isn’t the amount that these wheezes make pathetically small? (a) If you are unrich it’s still jolly welcome. (b) And it has another advantage. Anything that distracts an investor from fretting and fidgeting with his investments is a good thing. Don’t check your ruddy investments every week – it’ll only encourage you to sell and buy expensively. Distract yourself by making a few hundred on fiddling about with cash instead.
@TA
In post 19 you mention – it’s a pity MMF are being dinged from S&S Isa but is there not an exemption (or at least proposed) for the over 65’s ?
@Snowman – cheers for the background, that’s interesting to know. It does seem like the competitive market developed incrementally over time from the 1980s. My own experience is it really took the arrival of broadband and MSE before switching became frictionless enough for me to take advantage of market choice.
I remember trying to compare energy providers in the early 2000s. I had to collect a load of promotional leaflets. Each provider advertised their rates in different ways. I didn’t know how to convert their numbers into a comparable rate. I gave up.
A few years later MSE made it easy. At some point, I guess the regulator forced the providers to use a consistent, comparable rate too. Even if they hadn’t it would be relatively straightforward to find a conversion formula online, or ask AI to do it for me.
Today it seems simpler for me to compare and switch providers than to bother haggling with the incumbent for a better rate.
@KLJ – Very interesting, what were the doorstop collectors selling? Insurance policies of some kind? I think my dad had various insurance-backed policies on the go that he now draws from in retirement.
The first index-linked saving certificates were launched around 1975. I think they called them ‘granny bonds’ because guilty MPs knew that pensioners were being ruined by inflation. Would be interesting to tie this into the first formal index-linking of the State Pension which I think didn’t happen until 1980-ish (I’d need to double-check). Very much after the horse had bolted. And index-linked gilts were launched in 1981 – apparently as a statement of intent that we intended to control inflation in the future.
I’d like to know more about who invested in the UK stock market too. I’ve got a vague sense that shareholder society was very thin before the privatisations of the 1980s. I wonder if it was actually more widespread before WW1, albeit I suppose the number of people with enough disposable income would have been disproportionately smaller.
Re: MMFs – I think you’re right over 65s will be fine. Sadly I’m not there yet 🙂 Personally I think telling people how much risk to take is a terrible idea. I’m all for encouraging, educating or incentivising people but the stick approach here is all kinds of wrong.
@TA (#25)
For me there were two doorstep products:
1) Term life assurance policies ‘with profits’. In the late 1980s/early 1990s we had two – one with the Pru and one with General Portfolio – the latter eventually ending up with Windsor Life. The mutual fund units in the GP example had a 5% entry fee and, IIRC, 1.5% annual fee. Changing portfolio (which I never did) was done in writing by post and took about a month (and involved large bid-spreads and another 5% fee!)
2) A pension with GP with similar charges.
This was after encouragement from my father, although he also had a stockbroker (who visited once or twice per year) and portfolio (which, amongst other things, included individual 11% and 12% gilts and Barclays ‘unicorn’ mutual funds).
Finding online investment providers made a significant difference to my fees!
I also wonder about stock market investing (currently just over 50% of the UK population invests) but I have been unable to find any data – historically, a lot of investment trust ordinary shares were priced so they were affordable to a wide range of people – I’ve recently read something (but cannot find the reference) that included a list of the occupations of those who invested in a newly created investment trust at the start of the 20th(?) century and it appeared fairly diverse.
@TA
As regards doorstep collectors i believe they were selling “penny polices” which i think were also called endowments (but that might have been something else?) savings, life insurance or funeral plan etc
I would guess they went back at least until the 30’s as i found old books when clearing my folks place – but i can still remember paying “the man from the PRU” among others the small amount of coins my mum left by the door.I had a policy set up when i was born in the late 50’s and was set to payout when i got to 16 or 18 and while i have forgotten the amount it was i think somewhere between a £1000 – 1500 which was a good sum (to me) in the mid 70’s leaving school.And from what i can remember would have had at least a small part invested in i guess Uk shares.
Its always worth checking if you find an old family policy as some were not paid out at term but left paid up and invested to roll on and can be traced.
Think your right about share ownership before the 80’s as i think it was more through a stockbroker or even the bank manager if you had the money.I do wonder if there were employee share plans before that – but before fund platforms i think the monthly investment savings plans in things like F&C investment trust with a their low(ish) entry points were probably popular and that was my first way in.
@Alan S
we are certainly spoiled with fees nowadays as i can remember starting a pension in the 80’s and being young & having no idea from the small print (and no surprise the guy in the bank failed to explain) about why for the first 2 years i was paying into something called initial units – much to the benefit of Barclays it turned out. It was only when buying a flat and the solicitor explained why the estate agent or Building society were so keen to sell me endowment mortgage & life insurance due to commission and went just like pensions i found out.
@TA (25)
I’m amused that you are young enough not to be familiar with doorstep insurance salesmen. Indeed, as Alan S and KLJ mention, the ‘Man from the Pru’ was a feature of British life for many years. He was so ingrained in popular culture that his image featured in Prudential’s advertising.
For many years, I would imagine that ‘with profits’ insurance policies, sold door-to-door, were the only way that the majority of the population would ever invest. That said, I don’t think the extent of individual share ownership before the privatisation issues should be understated. My father owned shares and I don’t think it was that unusual among middle class households. He took the Yorkshire Post on weekdays and the Sunday Express and both of these had extensive city news and share tips (for better or worse). I remember him telling me that a tip in the Sunday Express was enough to move the market in that share the following day.
My father did not have a stockbroker – he bought and sold through his bank, as mentioned by KLJ. The bank would pass the order on to a local stockbroker. There were many regional stock exchanges in the past and I remember some of his trades were on the Huddersfield Stock Exchange – difficult to contemplate in this day and age.
There is this conjecture, which sounds faintly credible but is empirically untested (at least as far as I’m aware), that the extremely high costs and frictions (spreads and delays/paperwork) with financial investment products in the past resulted in then having far higher expected returns (to compensate), and that, consequently, in an era of zero commission, FX fee free, trading apps the future returns on securities will be less. I wonder what folk here make of that idea?
@DavidV (#29). Interesting history of provincial exchanges at https://www.quceh.org.uk/uploads/1/0/5/5/10558478/wp16-03.pdf . Thanks for that pointer, I didn’t know previously about their existence (except Edinburgh and Glasgow).
@DH (#30). I don’t know the answer – but has the broadening of regular investment in pensions (e.g., in the US and UK) increased the flow of so-called ‘dumb’ money and provided a larger baseline of inward cash flows. Conversely, low fees (and online platforms) make trading strategies easier to implement (but not necessarily any more successful).
Fascinating to hear those memories, thanks all. I think my dad had a life assurance policy, I’ll need to ask him. There wasn’t any discussion in our family about shares until the sale of BT and British Gas.
Now I come to think of it, my maternal grandmother owned a portfolio of stocks bequeathed to her by my grandfather who died before I was born. However, they lived in Ireland so that would be another kettle of stock-holding fish. My mum’s parents were middle-class whereas my paternal grandparents, who I knew much better, were working class. On my birthday they would send me a postal order. I think this is the only time I ever saw postal orders. I’ve just had a quick look and it seems as though postal orders are still a thing.
I remember my mum telling me a story that upon my Irish grandmother’s death, they found the share certificates rotting in a box, and most of the companies had gone bust.
@DH – I can imagine that having an impact but perhaps marginal and swamped by other risks. I don’t think there’s any obvious linkage. Returns aren’t decreasing monotonically over time.
@TA
Your mention of postal orders gives me another chance to go down memory lane (promise One Last time and is kind of cash related). As well as getting postal orders for Xmas & birthdays another treat in the 60’s and before were National savings stamps. Where you got a sixpence or shilling stamp (or if you were the annoying posh kid at the top of our street a bigger denomination with Prince Charles on) and stuck it in your small savings book and when complete the book could be cashed or swapped for another savings product at the post office.
And to get children to save the PO used to come to your school once a week normally on a set day to help invest your pocket money (or steal your comic money depending on point of view at 8 years old) and was probably one of the last efforts to teach kids to save via a scheme.
This is a really valuable article, thanks TA. I had no idea about the -58% UK cash bear market – that’s a lot worse than I’d thought cash could do.
I feel even better now about holding a lot of my cash-like assets in short duration linkers. They have similar (lack-of-)return to cash, but without the risk of being hammered by inflation.
@KLJ,
FWIW, my main current account to this day is directly traceable to the bank a/c I had to open to deposit my [first] completed books of saving stamps – over fifty years ago! IIRC, by then the stamps cost 50p each and you could buy them from a machine on the wall somewhere in my school. Those stamps were not from the PO, but rather a high street bank.
I had pretty much completely forgotten all of this until I saw your mention of saving stamps. Thanks for jogging my memory.
In the woodworking class at school we had to learn to make neat little dovetail joints and then use them to make ourselves piggy banks. I wonder what happened to mine. I imagine I used it for a while.
Maybe Dad gave it away: he was a great supporter of the Girl Guides and handed quite a bit of our stuff to them when we left for university.
@AL CAM
That’s cool – It looks like you were the poster child for the scheme! In my foggy memory i think i put mine in a PO pass book to start but then bought some form of savings certificates (which like premium bonds were lower in price in them days) later on as i got older.
I’ve been looking at options to hold the cash portion of my portfolio, outside ISA/SIPP, in either savings accounts and MMFs.
Top 3 best easy access savings account pay 4.5/4.27/4.27%
Top 3 best 1 year fixes pay 4.68/4.67/4.66%
Top 3 yielding MMFs pay (discounting OCF) around 3.8% to 3.9% and then platform fees.
This is a big gap. What is the use case for MMFs? One can hold up to £360k FSCS protected in the top three 1 year fixes (plus a ten minute yearly job of rolling them over). Surely worth it for a 0.75% differential?
Are we in a period of time where this big differential is unusual?
@Dodex — Have you considered looking at very short-term (1-2 year) low coupon gilts, as you’re saving here outside of tax shelters? There can be a big tax advantage:
https://monevator.com/reduce-tax-on-savings-with-gilts/
(Not personal advice, which I cannot give here. Just for your further research!)
@Dodex – Outside of investing accounts, I agree with you that savings products look better to my eyes.
FWIW, you may not be comparing apples with apples. From your description I think you’re comparing the 12-month trailing yield of an MMF (which isn’t compounded) vs the current AER (compounded rate) of a savings account.
Details here on the apples-to-apples comparison:
https://monevator.com/money-market-funds/
Promotional rates generally give easy access accounts the edge but not always. The differential opens and closes over time.
In the MSE era, the best easy access cash rates almost always beat MMF rates. That’s misleading though if you don’t monitor the competitiveness of your rate.
1yr fixed rate savings involve term risk. They’d have lost badly in 2022 as interest rates rose, for example. They’d win if rates fall. I think TI is right that short gilts are a good comparator.
With MMFs you get liquidity (as with easy access savings) and the guarantee you’ll track the Bank Rate (for better or worse) without having to lift a finger.
I agree with you though that cash’s FSCS protection is a big win and you’re obviously motivated enough to not allow your savings accounts to slip into decrepitude.