1% interest rate hike needed to kick start a savings revolution

Ahead of this week’s interest rate announcement by the Bank of England, savers have said that it would take a minimum 1% rise to encourage them to save more.

True Potential’s research shows that 83% of savers think that the Bank of England would have to raise the base rate by 1% or more in order to kick start a deeper savings culture. In addition, many young people have never seen a return on a cash investment because rates have been held at 0.5% since March 2009. These issues have led experts to argue for a radical change in savers’ habits.

Our UK-wide investigation into Britain’s savings and debt habits, involving more than 2,000 people, is part of our on-going ‘Tackling the Savings Gap’ campaign, aimed at uncovering the seriousness and scale of the savings crisis plaguing the UK.

We believe an interest rate rise of 1% is highly unlikely in the short term due to the fragile nature of the economic recovery. A rise in 2015 of 0.25% is more likely, though according to our research, only 4% of the population believes that will encourage them to save more.

True Potential’s Managing Partner David Harrison, commented: “The chances of an interest rate rise at the moment are incredibly slim, so savers need to think about what they can do themselves in order to achieve growth in their savings. The answer is certainly not more cash savings. Sadly, savers have been persuaded that stock market investments are riskier than buying property and that cash savings are totally risk-free. Many of those who purchased property around 2007 believing it to be a safe investment will be in negative equity now. Meanwhile, even at current low inflation rates, the value of cash savings in real terms can actually reduce year on year.

“People need to invest in assets that have a track record of beating inflation if they want to make the most of hard earned savings. But of course they need to be properly informed about the comparative risks. Financial advisers do have an important role to play in clearly presenting the alternatives to savers and helping them to navigate their way through all the jargon and unnecessary complications that put so many people off.”

To help tackle the UK’s savings gap, we partnered with the Open University to launch the True Potential Centre for the Public Understanding of Finance (PUFin). Through its research and the delivery of free modules available on the Open University’s OpenLearn platform, PUFin is providing individuals with the knowledge and confidence to make sound financial decisions.

The Managing my Money course allows people to learn at their own pace. It is intended for those with an interest in developing their personal financial capability but who do not have previous experience studying the subject.

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