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Tim Leonard

Tim Leonard

Finance Expert
Published: 09/01/2019
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Savers left hundreds of pounds out of pocket from years of economic uncertainty have been urged to consider the merits of stocks and shares in the quest for better returns.

A combination of rising inflation and low interest rates mean that since the Brexit vote in 2016, the value of savings deposited in cash has fallen by up to 4% in real terms, according to Scottish Friendly. By contrast, those who put their money in a stocks and shares ISA tracking the FTSE All-Share have enjoyed a real return of 9% in that time.

The calculations reveal that savers who deposited their full allowance of £15,240 into a cash ISA in September 2016 - three months after the Brexit vote - have seen their pot grow by just £225 to £15,465 over the past two-and-a-bit years.

However, due to the rising cost of living, the real value of that money has actually diminished by 4% to £14,620 over the past two years. After accounting for inflation, this equates to a real annual interest rate of -2.1% over the period, equivalent to a total loss of £620.

By contrast, had the same amount been invested in a stocks and shares ISA tracking the FTSE All-Share Index instead, a gain of £2,344 would have been made.

Even adjusting for inflation, investors would be sitting on a pot worth £16,623 in September 2016 prices – a real return of 9%, equating to an annual interest rate of 4.4%.

"Just when savers thought things couldn't get any worse, the Brexit vote happened," said Calum Bennie, savings specialist at Scottish Friendly. "This contributed to rising inflation – the silent killer of savings – and meant that the value of any money in poor-paying cash accounts was gradually eroding. What's worse, most people will have been unaware that their savings were slowly becoming less valuable."

The risks that come with investing mean it is not an avenue that everyone wants to explore. While the actual sum of money deposited in cash-based savings accounts is guaranteed not to fall in value, there are no such assurances when it comes to stocks and shares - indeed, you could even end up with less than you put in.

However, if you are willing to accept the risks, there is the potential to earn returns above and beyond those available on a traditional savings account. Importantly, investing should be considered a long-term venture, meaning five years is probably the minimum length of time you need to be thinking about committing your money.

"While it's a good idea to keep a healthy sum of money in an accessible cash account to cover emergencies and planned expenditure, more needs to be done to educate savers that the stock market offers potential for greater returns," adds Calum Bennie. "Of course, there is risk associated with investing, but if you're willing to keep your money in the stock market for the long-term, your investment will have the opportunity to ride out the ups and downs of the stock market. Naturally, many people are nervous about investing but it needn't be scary if you start by investing a modest amount on a regular basis."

What next?

Find out more about stocks and shares ISAs


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