Cash remains king for many savers, but there are growing concerns that this preference could mean they lose out on heightened returns, with record low savings rates seriously taking their toll. As a result, Royal London is urging more savers to consider investing in stocks & shares ISAs, rather than their cash counterparts, to benefit from far greater growth.
Recent figures from HMRC show that annual subscriptions to cash ISAs vastly outweigh those to stocks & shares equivalents: in the tax year 2014/15, a total of £83.24bn was subscribed to ISAs, including £60.95bn in cash and £22.29bn in stocks & shares. Similarly, in the 2015/16 tax year, stocks & shares ISA subscriptions totalled just £21.13bn, while the figure for cash stood at £58.69bn, giving the annual total of £79.82bn.
Not only does this show that ISA subscriptions as a whole fell slightly in the 2015/16 tax year, but it highlights the clear preference for cash; indeed, over the two-year period, cash ISA subscriptions amounted to nearly £120bn, compared with just £43bn in stocks & shares, despite the fact that average savings rates have been plummeting while investment performance continues to surge ahead.
Unfortunately, analysis from Royal London shows that consistently opting for cash could have a huge impact on your eventual returns. Indeed, it found that investors have lost an estimated £100bn in returns over the last decade by saving in cash ISAs rather than investing in a diversified stocks & shares ISA, an issue that's becoming even more intense now that the combination of low savings rates and higher inflation is creating negative returns.
"Saving in cash clearly has a part to play for short-term emergencies and rainy day savings," said Helen Morrissey, personal finance specialist at Royal London, "but a combination of low interest rates and rising inflation means that money in a cash ISA is losing spending power, year after year. While cash ISAs have a role to play, investors must also consider the benefits of the investment returns gained from stocks & shares ISAs."
So why not get on board? We're not saying you should transfer all of your cash savings into a stocks & shares counterpart – if you did, you'd need to be aware of the particular transfer rules associated with it – but splitting your 2017/18 ISA allowance
between the two could be the ideal solution. That way, you can benefit from the security and convenience of keeping some of your savings in cash, while enjoying the potential for returns that can be achieved with a stocks & shares ISA, provided you're happy with the risks of the latter.
Find out more about stocks & shares ISAs here, including the additional risks involved, then take a look at the various investment ISAs available. Don't forget about cash ISAs, either – fixed rates in particular have improved of late, so now could be a great time to check out the best cash ISA rates to find a new home for your tax-free allowance.
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