‘Eroding’ savings accounts may lose Brits money – but warning on ‘high risk’ alternatives

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It found that while more than half (54 percent) of Britons are now choosing investing over saving because of low interest rates, 45 percent said they have kept their money in cash savings despite this. And, although more people investing can only be a good thing, experts are concerned that unrealistically high expectations of returns may leave some people open to scams.

It’s been a tough 18 months for savers who’ve seen relatively little return on their cash following the Bank of England’s decision to keep the base rate at 0.1 percent – which only increased this month, to 0.25 percent.

Research from last month shows that many savers started to look elsewhere when rates fell below one percent.

While investing can provide much better returns, experts fear that Britons seeking a better rate might be caught out by investing scams.

Worryingly, the research found that it’s only when investments promised returns of 10 percent or more a year, that the majority of people started to suspect it could be a scam.

Steven Cameron, pensions director at Aegon, said it’s no surprise that people are turning their backs on savings accounts.

Prior to the central bank’s increase, he said the record low Base Rate has “promoted many people to review what they hold in cash and turn to investment opportunities with the potential of higher returns”.

He continued: “Over time, money left in cash accounts is at risk because of the eroding effect of inflation that reduces purchasing power.”

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Mr Cameron added that investing one’s money can mean it benefits from growth which can outstrip the rising prices of goods and services, although this is by no means guaranteed.

He added that despite the rising popularity of investing, some adults are still saving large amounts of excess money in cash.

He urged people who might not need to access cash straight away to consider investing it instead.

“While this might be used to build up a ‘rainy day fund’ or pay off debts, people with large amounts of savings which don’t need to be accessed in the short-term could have a more realistic chance of earning a real rate of return through investments,” he explained.

In addition, the research also found that the under 35 age group is more likely to put all their savings in investments, without thinking it through.

Although this could prove beneficial over the long-term, he warned the younger generation to stop and think for a second.

“Throughout the pandemic we’ve seen younger investors getting involved in higher risk investments,” he said.

“So it is important there is an understanding of the risks involved, including from the threat of scams.”

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Anyone who is thinking of investing their cash should remember that investments can decrease and there’s no guarantee.

People may choose to save rather than invest because it doesn’t carry any risk.

However, the disadvantage of saving instead of investing is the low returns currently on offer.

Due to soaring rates of inflation and a low interest rate environment, savings will not grow according to inflation – resulting in these savings losing value as prices rise.

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