Rates on savings and cash Isas might be stuck at almost zero, but savers are still not willing to invest.
Research by F&C Investments has found that 17% of savers think they can get a similar level of return by leaving their money in cash as they would by investing, for much less risk.
A further 57% think investing is too confusing to understand.
season is in full flow, with the end of the tax year (5 April) rapidly approaching and many people looking to use up their remaining allowance to make the most of tax-free saving. But this year banks are not undertaking their usual tactic of upping savings rates to seduce new customers; in fact the best offering on the market pays interest of just 1.5%, not even beating inflation
Yet, according to figures from HMRC just 20% of Isas are stocks
and shares Isas, with the overwhelming majority still languishing in cash.
F&C is urging savers to consider investing, pointing out that putting £50 a month into a stocks & share Isa could equate to a return of £43,143 after 25 years (assuming an 8% annual return from a FTSE All Share tracker).
That £50 equates to a total investment of £15,000 over the period, so the holding has grown by more than £28,000. If you left the same sum in cash it would only earn you £981 in interest over that time.
Five years of 0.5%
“It is startling to see how many active savers choose not to invest, instead keeping their money in cash, particularly when interest rates are at historic lows,” says F&C spokesman Ross Duncton.
Indeed, today marks five years since the Bank of England reduced its base rate
of interest to 0.5%, and in that time savers have been battered by a double whammy of poor rates and above-target inflation eroding their money.
Pensions commentator Dr Ros Altmann says the message being sent to people is “you are a mug to save”. She points out that an individual with £100,000 in a cash Isa will have lost around £18,500 of income since 2008 due to inflation and poor interest rates.
F&C's research found that some 78% of people would be happier to invest if they felt they understood the products. Duncton says this lack of clarity is causing too many people to miss out on potentially better returns.
In the UK, stocks are fixed-interest securities such as corporate bonds and government gilts. In the US, stock is the most widely used term for shares; a diminutive of the term “common stock”.
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.
An increase in the general level of prices that persists over a period of time. The inflation rate is a measure of the average change over a period, usually 12 months. If inflation is up 4%, this means the price of products and services is 4% higher than a year earlier, requiring we spend and extra 4% to buy the same things we bought 12 months ago and that any savings and investments must generate 4% (after any taxes) to keep pace with inflation. Since 2003, the Bank of England has used the consumer prices index (CPI) as its official measure of inflation (see also retail prices index).
Also referred to as the bank rate or the minimum lending rate, the Bank of England base rate is the lowest rate the Bank uses to discount bills of exchange. This affects consumers as it is used by mainstream lenders and banks as the basis for calculating interest rates on mortgages, loans and savings.