Those wedded to holding cash have been punished over the past seven years since the 0.5 per cent base rate was established in March 2009 and there is little prospect of relief in 2016, according to Adrian Lowcock, head of investing at Axa Self Investor.
Mr Lowcock said there were three reasons interest on cash would continue to disappoint in 2016.
First, he said banks were not lending as much and second, interest rates in the UK were now unlikely to increase in 2016.
Third, Mr Lowcock pointed to changes in the tax treatment of savings interest.
From 6 April savers will get tax-free interest on the first £1,000 of interest.
While any benefit from this should go directly to savers, he said an unintended consequence could be that rates fall as banks take the opportunity to cut interest rates further.
“In the meantime, equities continue to offer attractive yields for investors,” said Mr Lowcock, who picked Newton Real Return and Fidelity Global Dividend as his tips to provide a growing yield while targeting capital protection.
Adviser View
Paul Howard, proprietor of Berkshire-based Ifa Box Financial Planning, said: “No matter how poor the returns are on cash, people still need to hold it for day-to-day purposes, as well as holding it ready to invest.
“Basically, people should only go into equities for medium to long-term investment purposes. They should not be looking at such funds as a substitute for cash.”
Return since March 2009 |
Index | Total Return | Inflation Adjusted Return |
FTSE All Share TR | 121.3% | 105% |
MoneyFacts Instant Access notice 10K | 5.7% | -10.5% |
Source: FE Analytics, AXA Wealth
