Pandemic savings risk being wiped out entirely due to soaring inflation and a worsening cost-of-living crisis, a fund manager says.
Inflation burned through a record £98bn of savings deposits last year, and that is set to rise significantly in 2022, research by Janus Henderson (JH) on the ‘cost of cash”.
“Inflation has burned through nearly all cash savers added to deposit accounts last year, and 2022 is going to hurt even more as prices soar,” said James de Sausmarez, director and head of trusts. investment at Janus Henderson.
Interest income has fallen from around £1,100 a year per person at the turn of the millennium to just £69 last year, Janus reported.
People mistakenly poured funds into savings accounts rather than asset classes and investment trusts, Janus said, with a 17.8% rise since the pandemic began.
In monetary terms, UK savers have poured £283bn into accounts at banks, building societies and NS&Is since inception, or £10,012 per household.
Cash deposits now account for 18 months of all UK consumer spending, but interest income has fallen to a record low on all that £2.5billion cash.
De Sausmarez commented: “The British are simply neglecting their future by letting such sums languish in cash.
To illustrate how time erodes liquidity, the fund manager points out that a 20 pence coin would now have the purchasing power of 5 pence in 1982.
De Sausmarez advocates stocks as a hedge against the damage of inflation, even with the risk that they could go down as well as up.
“Essentially, stocks have a significant element of built-in inflation protection, as many companies are able to raise prices and protect profits when the cost of living rises.”