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.
Isa 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.
This article was written for our sister website Money Observer