JASMINE BIRTLES: Savings accounts should come with a health warning

22 January 2020

With savings rates so low, where should you put your money?

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Warning: your interest in this article could go down as well as up… Moneywise offers no guarantee that your interest won’t crash into oblivion at the mere mention of ‘building societies’ or ‘interest rates’. If you experience feelings of ennui while reading this article, immediately go to your local sweet shop.

Yes, I know… ‘the value of your investment could go down as well as up’. Yes, of course, but isn’t it time we heard something similar every time savings accounts were mentioned? Something like ‘you will definitely lose money in real terms if you leave it in this account for more than a year’. Catchy? Hmm, maybe not.

But when you stop and think about it (which most of us don’t and that’s the problem), putting any more money into a savings account than you need to have as a ‘savings safety net’ (enough to cover your costs for at least three months) is, as The Share Centre, recently put it ‘muppet money’. At the time of writing, the very best savings rate I can find is 2.03% for a fixed five-year term.

If you had saved £200 a month for the past 10 years (£24,000) in an average cash savings account, it would now be worth £25,563 (or even lower in inflation-adjusted terms). Investing in a basic FTSE 100 fund, however, would have left you with £28,102, a profit of £4,102 – about a 17% return. The numbers speak for themselves.

Financial advisers rightly caution against believing in ‘guaranteed returns’ of anything more than 4.5% a year, but just a bit of reading up will show you the ‘likely’ returns (based on past performance and the company’s background) of quite a lot of apparently ‘risky’ investments.

I am not suggesting we put all our hard-earned into some dodgy crypto or Cape Verde holiday home scheme.  But come on… at least a portion of our investments need to go into something a little more interesting (in both senses) than a pathetic Cash ISA.

As far as I am concerned, the majority of my investments should be in stock market and bond funds – but, in my opinion, a good 10% to 20% of my money needs to be in products which, if they were men, my mum would be warning me about.

You know the sort: new and sexy products that give you the eye and promise you the world. Some of them turn out to be cuddly long-term keepers (to the surprise of all your friends and family), while others drop you like a stone (as everyone nods knowingly). But if you don’t give them a try (after doing some due diligence), you will never know how good they could be.

I have mentioned before that I am a fan of peer-to-peer platforms, new digital banks and even some crypto products (yes, it is the future, I don’t care what anyone says). I think gilts are for people who like to wear two pairs of pants “just in case” and I have never opened a Cash ISA. As far as I am concerned, my ISA wrapper needs to be filled with delicious, money-earning morsels that will expand to my future delight, not flat cash savings that offer 0% of nothing year on year.

And I don’t think I am being rash. As far as I’m concerned, the rash ones, the ones who are putting their wealth at risk year after year, are those who insist on keeping the majority of their money in ‘safe’ products such as savings accounts or Premium Bonds.

Interestingly, I am seeing a few other women thinking the same way, even though it always used to be the case that ‘men invest, while women save’.  But, according to a survey by peer-to-peer lending platform Blend Network, double the number of women compared to men are keen on investing in alternative finance products. Their cooler brands seem to appeal, in particular, to younger generations of women. It is a step forward, but I would like to see more women go for them because of their better returns, not because they sound cool.

I am not saying that these high-returning strategies will always pay off. Usually you win some and you lose some. With savings accounts, though, you are just guaranteed to lose some and lose some. Time to put our big pants on and make some serious money. 

 

Jasmine’s views are her own and do not constitute investment advice.

Jasmine Birtles is a financial journalist and founder of MoneyMagpie.com. Email her at columnists@moneywise.co.uk