10 years of low interest rates: save or invest?

It’s now been over a decade since the financial crisis, when the Bank of England cut the interest rate below 1%, sending the average savings account rate plummeting with it.

While the Bank has raised the rate slightly since then, the available rate on a savings account or cash ISA often still falls short of inflation – meaning that you are losing money in effect, over the long term. But with a timeframe like ten years, longer than a short-term savings pot but shorter than, say, a fund that you might use to supplement your pension that you may have built up through long-term saving and investing, the question of whether to save or invest depends quite a bit on your circumstances.

A place for savings

In theory, rate rises are great news for savers. Savings account providers are typically supposed to pass on interest rate rises from Bank of England through their mortgage rates (perhaps less good news for homeowners) and the interest on their savings rates. However, with only two rate rises having happened in the past decade, many providers have been keen to pass on the mortgage costs but less so the benefits to savers.

Savings accounts can still benefit people saving for the medium term in many circumstances. For example, an emergency fund is likely to be best housed in a savings vehicle rather than investments, given that you might need it at any time. Similarly, your savings are protected up to a certain level by the Financial Services Compensation Scheme, giving you peace of mind, should the bank or savings provider fail while they still have your deposit.

Inflation – the silent returns menace

It would be nice if saving £1,000 ten years ago meant you were guaranteed that money now – along with a bit of interest – and the cash would be worth as much today as it was then. Whether you’re saving or investing, if the savings interest or investment return is less than inflation, your capital could buy a lot less than before, especially over a period as long as a decade or more. In our article tackling the threat of inflation, we found that after 10 years with inflation at just 2%, £100 would only be able to buy things worth £82.03 today.

You may get back more than you invested

Anyone who’s seen a financial advert on the train will know the refrain, ‘investments can go down as well as up and you may get back less than you invested’. In the worst-case scenario you could lose some, or all, of your original capital. So if you don’t want to risk even the slightest depreciation, saving would be the most suitable choice – no matter what it is you’re saving towards.

But with time on your side, and a willingness to ride out the bumps in the market, investments have delivered a return over 10 years well above a standard secured savings account. It’s a clichéd phrase here but “time in the market” rather than trying to “time the market” can show why it can pay to keep calm and stay invested. If we look at the five-year performance of two funds which track the 100 largest UK companies and the 100 largest companies in the world, they have outperformed a 1.35% savings account overall, but also suffer losses on a discrete year-to-year basis.

Saving and investing: £100 over five years


Ten years can be a long time or no time at all, depending on what it is you’re saving towards. However, with interest rates once more on the rise, we might see savings account rates begin to outpace inflation again, thereby giving you more value from your capital when the time comes to take it out.


Please remember past performance is not a guide to future returns.

Please remember the value of your investment and any income from it may fall as well as rise and is not guaranteed. You may get back less than you invest.

Please note the information, data and any references in this article were accurate at the time of writing. Please check the date of the content if you’re looking for up to date investment commentary or tax-year related information.