Fear keeps savers in cash accounts

Half of savers surveyed say they would not consider investing in stocks and shares, with 49 per cent citing fear of potential losses as the main thing holding them back.

More than half of savers are seeing the value of their cash eroded by inflation because they are too scared to invest. Research from Scottish Friendly suggests savers are suffering from ‘investophobia’, avoiding putting their money in the stock market for fear of losing any.

Some 53 per cent of 2,000 savers surveyed say they would not consider investing in stocks and shares, with 49 per cent citing fear of potential losses as the main thing holding them back.

But those leaving their money in the bank are losing money in real terms as inflation erodes the value of cash. Inflation is currently at 2.4 per cent while the best easy-access cash savings rate is currently just 1.33 per cent.

Calum Bennie, savings specialist at Scottish Friendly, says: ‘Every pound you save becomes less valuable when it’s held in an account that pays less than the rate of inflation. Brits are being driven by a nagging fear of losing money, which may be clouding their personal judgment when it comes to important financial decisions.’

Research from investment giant Schroders shows that £1,000 put into the average cash Isa in the 1999/2000 tax year would have grown to just £1,162 by the end of the 2016/17 tax year – a measly gain of £162 over a decade.

Meanwhile, the same amount invested in the FTSE All Share index would have grown to £1,841 – a return of 3.66 per cent a year.

Research shows that since 1999 stocks and shares Isas have beaten cash accounts two thirds of the time.

Despite that, some 39 per cent of people say they feel more comfortable keeping their savings in cash. Some 28 per cent say financial products are too complicated, while 25 per cent think they can’t afford to invest.

Bennie adds: ‘Investing is not without risk, of course, and ultimately you shouldn’t feel uncomfortable about where you’ve put your money. But interest rates on cash accounts have been rock-bottom for a very long time now, and inflation is consistently eating away at the value of that money.’

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