Britons urged to consider ‘better option’ for cash – Savers could be losing £800 a year

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Martin Lewis says people should consider ditching Cash ISAs

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Britons are urged to consider ways to mitigate inflation’s impact on their income as money in the bank is rapidly losing value. UK consumers are leaving billions of pounds rotting in bog standard savings accounts and cash at a time of low interest rates and soaring inflation. Research by abrdn has found that over the past year the average return on a stocks and shares ISA was much greater than the value of leaving it in cash.

The intention is to show savers that their money could be working harder for them in a stocks and shares ISA. With investing, it’s important to be aware that capital is at risk.

Paul Titterton, Head of Digital at abrdn spoke exclusively with about the benefits of using a stocks and shares ISA to potentially match inflation.

He explained that a consumer who had £10,000 in cash five years ago, will have lost value in real terms due to inflation.

Mr Titterton said: “In real terms the purchasing power of this sum could have been reduced by £800 to £9,200 because of hikes in inflation. You could lose £800.

“By comparison a consumer who invested £10,000 in a stocks and shares ISA over the same period, could have seen their investment grow to £13,100, representing positive real performance, providing £11,500 even after allowing for inflation.”

Consumers should remember that past performance is not a reliable indicator of future results the value of investments can go down as well as up.

He continued: “For those wanting their money to work harder and potentially beat inflation, a stocks and shares ISA can be a better option.

“That’s even the case for first time investors who are nervous about taking that first step, with access to a stocks and shares ISA being easier than you may think.

“Savers putting money into a stocks and shares ISA now should plan ahead to maximise their returns for the next tax year, giving their money more time to grow tax-free, which means you could end up with more longer term. Some ISAs can be opened online with as little as £1.“If you want to avoid losing money in real terms in the current climate, it’s wise to think about what more you can do with it.”

Many people may not invest in ISAs due to lack of confidence and it may seem complicated, however there are many investment guides which aim to help beginners. Britons are encouraged to do their research before investing into anything.

Andy Dunbar, Head of Digital Product at abrdn said: “We have made our Investment ISA easy to use and simple to understand, as well as offering a choice for different investment appetites.

“Many people don’t realise that money sitting in a cash account is rotting away because of inflation. Investing in an Investment ISA is an opportunity to wake up your money and beat inflation thanks to potentially higher returns.

“People are crying out for support, especially given the economic backdrop, so our campaign is about highlighting a simple step that can make a real difference to your savings.”

Inflation sits at nine percent and the Bank of England base rate is currently at two percent. Any cash in banks is essentially losing value, a concern to Britons given things are only getting increasingly expensive.

Mr Titterton continued: “Each inflation rise increases the pressure on already strained household finances, and there is a growing expectation that inflation will continue to climb for longer than previously thought.

“Soaring inflation reduces the ‘real-term value’ of money held in cash and savings accounts and limits the purchasing power of people’s hard-earned cash, potentially risking a shortfall in their planned future spending.

“This will be particularly acute for those relying on savings for day-to-day income, such as retirees. We know that many are already feeling the effect on their weekly shop and household bills.

“Our research found that just over half (56 percent) of people who retired in the past year were continuing to work, with a fifth (22 percent) saying they needed the extra income to meet the rising cost of living. It’s now more important than ever for savers to plan ahead and consider ways to mitigate inflation’s impact on their income.”

With a stocks and shares ISA people can invest up to £20,000 – this is known as their annual ISA allowance. People don’t need to pay UK tax on any returns they make.

One key benefit of holding a stocks and shares ISA is that it can be moved from one provider to another to ensure one if getting the best ISA rates.

Also people can make a lump sum investment and/or regular or ad hoc contributions throughout the tax year.

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