It has been reported that £10,000 held in a high street savings account will be worth £9669 in two years’ time, effectively costing you £165.50 per year just to hold the cash!
This prediction uses an average interest rate of 0.76% for a fixed-rate 2-year account, which means while your money is costing you money, you can’t even spend it! If the prediction was based on an easy-access account, then the average interest rate drops to 0.65% and your £10,000 after 2 years will be worth £9848, costing you £76 per year.
This loss over the 2 years is due to inflation; that is, your money will be worth less in the future if the interest rates are not high enough to produce some growth. Actually, to break even you need to make 2.44%, not including fees, etc., and you will not get anywhere close to this for cash deposits on the high street.
For long-term savers this could add up to a massive loss over time and could mean that your savings are slowly eroding to be worth much less than what you deposited in the first place.
Whilst holding some cash on deposit for emergencies is wise, holding large amounts of cash in this time of low interest rates makes no sense. If you have large cash deposits you need to revaluate your situation and take action now to avoid your savings being eaten away.