Is this the end of ‘savings’?

‘Tell me if this doesn’t seem like Mars’, said the Coutts Chief Investment Officer at a Property Partner event in May – ‘I have an advert from 1991 that says – Nationwide, 1-year cash ISA: 16.25%…’ It certainly seemed like Mars at the time, in May 2016 – and now? More like Pluto.

Times have changed, and the Bank of England base rate is at an all time low of 0.25%. The Treasury has now issued public debt at a record negative interest rate of -1.77% a year, and RBS was the first UK bank to announce a negative interest rate of -0.4% for corporate clients. Are savings accounts next?

Rethinking your savings

While unlikely at present, it’s by no means unimaginable that we could potentially have to pay for the privilege of keeping our money secure. What we can be sure of, is that there will be no meaningful returns from savings products for a long time. In fact, savings are already being eroded by inflation at today’s rock bottom rates.

Savers looking for any kind of return, must now be willing to take some kind of risk and start investing – but this isn’t to say that they need to take much risk. So what are your options? The graph below shows a spread of different asset classes, ranked by risk and reward over the past 5 years:

Sources: Land registry, ONS, FTSE all share index, World Gold Council, Cash savings: Average household deposits with banks and building societies, (compiled by bank of England).

Stock and shares come as no surprise in the higher-risk group of investments. Gold, which can serve as a safe haven in times of crisis, has proven highly volatile and tends to under-perform mainstream asset classes in the longer term. It is also worth noting that the average return for savings accounts is far higher than you’d expect, because of previous rates that we can no longer hope to achieve.

On the other hand, Residential property has proven a lower risk investment, and with far higher rewards over the long-term. It offers a reliable income stream, and has seen no loss in any 5-year period since records began in 1973. There’s no arguing with the facts.

In the current environment (and with savings products seemingly at an end) the search for yield has been redoubled. In the words of Alan Higgins, Chief Investment Officer at Coutts:

‘Naturally if you’re offered an income stream of 3-4%, which is likely growing and relatively low risk – of course you have to take it.’

Our properties are currently offering an average income of over 3%, with potential gains if prices rise. We’ll say no more: