The dramatic fall of savings rates in recent weeks has only added to the pain that many savers are experiencing; rates have been on a downward spiral for years, but it's now become even harder to secure a decent return. This has caused many to look to alternatives, and for some, that's meant opting for a stocks & shares ISA rather than a cash-based alternative.
Cash ISA transfers surge
Data from Hargreaves Lansdown shows that cash ISA transfers surged during August, with the number of transfers to the HL Vantage stocks & shares ISA rising by 50% compared with August 2015. This was arguably driven by the base rate cut during the same month, which signalled to savers that cash interest rates weren't going to rise anytime soon – as expected, the opposite has happened, with returns from cash-based accounts proving negligible.
Danny Cox, chartered financial planner at Hargreaves Lansdown, said it was "hardly a surprise" that the firm had seen such a sharp increase in the number of cash ISA investors showing an appetite for stocks & shares. He noted the potential for base rate to be cut further when the Bank of England announces its decision later today, which he said would do little in wider economic terms, but would "act as another hammer blow for the saver".
Should you take the plunge?
So, is it time to switch away from cash and head to stocks & shares? While it may seem tempting, it's important to bear in mind the risks involved. Stocks & shares ISAs may offer the potential for better returns, but there's also the chance you could end up with less than you put in, with your precious savings being at the mercy of stock market performance.
It's therefore vital that you're comfortable with that level of risk and are happy with the trade-off – returns aren't set in stone, but there's the chance for them to be far higher than you could achieve on a traditional cash ISA – but if you're not, it's best to stick with the guarantee of a cash alternative.
But that doesn't mean you have to put up with poor rates! "Apathy is the savers' enemy," said Danny. "Too many leave their accounts untouched for years, despite expiring bonus rates, incentives and diminishing returns - 80% of those with easy access accounts haven't switched for 3 years [source: FCA]. Shopping around for a better rate is a good starting point cash savings."
So, if you're stuck in a cash ISA that's paying poor rates of interest, make sure to compare the options to see if you can snap up a better deal.
Disclaimer: Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.
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