Rises give pensioners reason to cheer after rollercoaster week

SAVERS and pensioners are celebrating an unexpected boost to their wealth after the era of rock-bottom interest rates comes to an end.

One-year bonds are now paying more than 4 per cent while annuities – which pay a guaranteed income for life – are yielding 7 per cent. That means a £100,000 pension could buy £7,000 a year for life. A year ago annuities paid barely half that figure.

The sudden increase in market rates means that savers have earned more from cash accounts than the stock market for the first time since 2015.

A saver who deposited £5,000 in a one-year fixed bond in January secured an average rate of 0.8 per cent, according to Moneyfacts, an analyst. So far they would have effectively earned 0.5 per cent on their cash.

While the return on cash savings has been low, the global stock market has fared worse this year. The MSCI World index, which tracks the largest firms in

the world, has lost 8 per cent this year.

The last time savings beat stocks was in 2015, when volatility in China, Brexit uncertainty and the default of Greek debt spooked investors across the globe. At that time a saver who had fixed in a one-year bond would have secured a rate of 1.42 per cent. Global stocks lost 1 per cent in the same period.

The gap between savings and investments could widen further this year, as interest rates rise and stock market volatility continues, experts said.

Russ Mould, of the broker AJ Bell, warned that inflation, war and rising interest rates were working against stock investors.

“Investors are now trying to work out when and why the mood music can change again,” he said. “Hopes for an early reversal of interest rate cuts drove the rally in share and bond prices over the summer, but sharp rates rises from central banks in the USA, European Union, Scandinavia, Australasia and Asia – with Japan, Russia, Turkey and China the only outliers – have punctured those hopes.”