Has anyone benefited from four years of rock bottom interest rates?

It’s now four years since the Bank of England cut interest rates to their lowest ever level of 0.5% and with no signs of a change anytime soon, we see if anyone is better off as a result.

The Bank of England has said interest rates will stay on hold at 0.5% in March – meaning they have now not shifted up or down for a record four years.

As the global economy crashed in late 2008, the Bank of England slashed the base rate from 5% to 0.5% in just six months and as has kept it there ever since.

The Bank argues that without low interest rates the economic crisis in Britain would have been far worse. Repossessions could have soared, more companies could have gone bust and the recessions been far worse.

And when the worst of the suffering passed, the Bank hoped that keeping rates low would stimulate recovery.

Investors and entrepreneurs – some of the key drivers of economic growth – are more likely to part with money and start businesses when borrowing is relatively low.

But not everyone agrees that the Bank’s method is one for success. While some groups of people have benefited, there is no doubt that the policy has had damaging side-effects. 

Savers lose out


Coupled with high inflation, the last four years of base rate at 0.5% has ensured next to no return for savers. 

There are currently no savings accounts without tax breaks, such as Isas, that offer a return to beat inflation.

[Related feature: Savers get better returns with credit unions]

Ros Altman, economist and pensions expert, calculates that since 2008, £10,000 in a cash ISA has lost £247 a year or £23.25 each month, while £10,000 in a fixed-rate bond is losing £263 a year or £25.30 each month.

“Four years of low interest rates has been awful for savers. Compounded by the Funding for Lending Scheme and now talk of negative interest rates, there doesn’t seem to be an end in sight for their misery,” said Anna Bowes director of savingschampion.co.uk

This has been an acute problem for those who rely on their savings for income, many of whom are pensioners.

No bonanza for borrowers

Four years of 0.5% base rate seen rates on loans and mortgages come down, but not nearly as much as the Base rate dropped.

The current lowest rate for a £7,500 personal loan is 5.1% APR, while in March 2009 the top deal was offering a rate of 7.9%, according to analysis by Moneysupermarket.com.

Average rates on two- and three-year fixed-rate mortgages have hit record lows of 2.34% and 2.89% respectively, a drop of 1.45% and 1.63%, since base rate plummeted.

[Compare mortgage deals]

And with house prices struggling, earnings depressed and inflation stubbornly high only 7% of those asked by Moneysupermarket said they were better off as a result of the low rate deals.

“On the face of it, borrowers are the winners of the low interest rate environment... However, this doesn’t tell the full story as many borrowers have been locked out of the market for much of the credit crunch due to falling house prices and the reluctance of lenders to lend, particularly to those with smaller deposits,” said Clare Francis, Moneysupermarket mortgage expert.

Not all forms of borrowing have become cheaper over the past four years either. The average credit card rate has steadily climbed from 15.7% to 17.6%, while the average overdraft rate has risen from 18.6% to 19.6%, according to Bank of England statistics. 

And the big winners are....


Market crashes may have spooked private investors – but your money would have performed far better in shares than in a cash account. Especially as it’s just as easy to put your shares in a tax-free ISA as it is to put your cash savings in one.

Since March 2009, when the base rate first hit 0.5%, the FTSE 100 has risen 82% and that’s not accounting for dividends. The FTSE 100 companies paid more than 3% in income to investors last year alone.

And analysis from Fidelity shows that many people could have done even better than that. 

“While cash may feel like the safest option, interest rates are likely to remain low and will offer very little opportunity for savers to grow their hard earned money or to maintain its purchasing power,” said Tom Stevenson, investment director at Fidelity Worldwide Investment.

“Investors can benefit from the long term outperformance of shares and bonds while still reduce the risks of investing with a few simple measures. For example, saving small amounts on a regular basis can help to combat the natural tendency of investors to sell when markets are low and buy when they are high. Diversification is also important.” 

[Related feature: Why you should invest in shares]

Four investments that have outperformed cash in the last four years:

1.    Gold

Alongside cash, many investors have put their money in the perceived safe haven of gold and also silver pushing prices up. Prices have gone from roughly $1,000 an ounce to hover at about $1,600 today.

"The average annual price rise for gold in the UK over this period is 18% with £1,000 of gold at the beginning of 2009 now being worth around £1,700,” said Daniel Fisher, chief executive at Physical Gold.

Fisher predicts the metal will continue to do well. “The good news is that as the world’s safe haven asset, this is the perfect environment for gold to continue rising over the medium term,” he said.

2.    Buy-to-let

As first-time buyers have struggled to get a foot on the ladder since the credit crunch, the number forced to rent has increased.

As demand outstrips supply, rents have soared by 13.6% since 2009, according to Rightmove. The figures mask regional disparities, with London and Manchester leading the way as rental hotspots.


3.    Fine wine

The Bordeaux Index, which tracks live changes in the prices of the 80-100 most traded wines, went from 91.85 in February 2009 to 124.58 in February 2013.

“Fine wine appreciation has grown rapidly in the emerging economies of Asia in the past 5-6 years and continues to be entrenched in the established markets of Europe and North America,” said Giles Cooper of the market trackers.

He points to Haut Brion 1995, which was trading at £2,200 per case in February 2009 and is now around £3,400 - a 51% return over this time.

Though Cooper said: “It’s vital to remember though that individual cases are not the best way to invest: a balanced portfolio can help to offset the risks and give the best returns over the given period of time the investment is aiming to mature.”

4.    Standard Life Equity Unconstrained fund

The fund has been one of the best performing in the past few years - returning 293% since March 2009. It currently aims to capitalise on low valuations in economically sensitive stocks and has positions in financial, consumer, resources and industrial firms, according to Adrian Lowcock, senior investment manager at Hargreaves Lansdown.

He commented: “Manager Ed Legget takes an aggressive approach which means the fund is likely to significantly outperform in a positive market environment but makes it more volatile than its peers.”

  [Free guide: Four shares set to soar in 2013]