It is commonplace to hear financial market commentators describing cash as 'king' in turbulent times. However, in the aftermath of any economic turbulence, it is the savers prudently holding on to safety of cash who feel hard done by the turn of events, as central banks intervene to cut interest rates in a bid to stimulate the economy.
Unsurprisingly, the fallout from the Brexit vote on 23 June is no exception. Within days of the vote, Bank of England governor Mark Carney hinted that the country's headline interest rates might be cut in light of economic uncertainty. Most market commentators feel a cut of 0.25% is a near certainty, and some even think zero interest rates might be on the cards.
While zero rates, if we get them, would be a first for the UK, other countries – including Japan and the US – have been there before.
However, it was not supposed be like this. Back in 2006, just a couple of years before the global financial crisis took hold, it was easy to get flexible cash Individual Savings Accounts (ISAs) offering 5%-6% interest on holdings, and internet saving accounts with a 6%-8% interest rate return.
Icelandic banks, which subsequently collapsed, even offered a staggering 10% interest during the financial crisis to those who ignored the age-old saying "if it's too good to be true, then it probably is".
As the global financial contagion spread from September 2008 onward, the Bank of England scrambled – along with other central banks – to introduce a succession of interest rate cuts, the last of which came in March 2009, with monetary policymakers opining that 0.5% was low enough.
That is where the benchmark rate has stayed since, leaving interest rates on all forms of cash savings languishing at historically low levels. The average flexible cash ISA rate that savers can presently get is 0.69%. Even the best ISA products out there give little more than 2.75% with quite a few conditions attached, including either restrictions on withdrawals or loss of interest for 180 days if you take money out before an agreed timeframe.
Yet, prior to the Brexit vote, savers had reasons to be hopeful. Over the last quarter of 2015, the Bank of England and the US Federal Reserve were the only two global central banks on their way to raising interest rates. The latter duly obliged, but Carney and his Monetary Policy Committee never got around to it, and now probably will not in the near future with Brexit on the horizon.
Even if that is unlikely to create economic contagion on the scale of the global financial crisis, Carney simply had to tell the market he is ready to respond with the main weapon at his disposal – an interest rate cut – with savers constituting collateral damage for the greater good of the economy.
It is safe to assume that we should expect even more pathetic savings rates within two months of a 0.25% interest rate cut. Market consensus is in favour of flexible cash ISA interest rates averaging 0.50% – the "Brexit effect" as its being described in the City.
That means if you bank all of your 2016-2017 cash ISA allowance of £15,240, it would net you a princely £76.20 at the end of the tax year. Since it took the Bank of England more than seven years to finally get around to thinking of an interest rate hike, only for the sentiment to dissipate following the referendum outcome, I'd say we should brace for another decade of low interest returns on cash savings.
I doubt that savings were at the top of the Brexit campaigners' agenda in any case, but borrowers' fortunes most certainly were. While dismissing warnings about an economic downturn, most Leave campaigners correctly predicted that the Bank of England would move to cut interest rates.
So while your flexible cash ISA statement would make for depressing reading, your tracker mortgage statement – should you have one – would be the exact opposite, providing you have an equity of more than 25% in your home.
For case study purposes, say you have tracker mortgage of 0.85% plus base rate for a two-year term with £165,000 outstanding, a projected 0.25% rate cut by the Bank of England, would leave an extra £22 per month in your pocket, or £550 for the term of the deal.
Even for those with lower 5%-10% deposits, seeking to either take a fresh mortgage out or remortgage, there would be benefits. Rates for personal loans are also likely to come down, and expect better credit card deals too, with lower enticing fees on "zero percent" balance transfers.
However, the classic paradox in our post-Brexit era is that while cash savings are not materially improving the health of your bank balance, a borrowing binge is not exactly what the fiscal doctor would order either, given that there is economic turbulence on the immediate horizon.