19 September 2024
If you are covering the latest annual savings statistics from HMRC, please see the following comment from Rachael Griffin, tax and financial planning expert at Quilter:
“The lure of higher interest rates has resulted in a marked pick up in the number of cash ISA subscriptions. The share of accounts subscribed to cash rose for the first time in several years, rising to 63.1% in the 2022/23 tax year, up by 2.4% compared to 2021/22. The number subscribing to cash ISAs increased by 722,000, while stocks and shares ISA subscriptions dropped by 126,000.
“However, given the Bank of England has now started cutting interest rates, we are seeing a significant shift in the savings and investment landscape. For years, savers have enjoyed the benefits of higher interest rates, but we are now seeing a turning point which requires a reassessment of savings strategies. As interest rates continue to fall, the challenge for savers is to find new ways to make their money work harder.
“Those with substantial savings held in cash face dwindling returns if held for the long term. Remaining in cash for the long term in a lower interest rate environment means UK savers will collectively lose billions in returns.
“The Labour government has said it aims to boost participation in equity markets and improve the investment culture in the UK, but it has a rather large job to do. Its recent scrapping of the British ISA was further proof that it simply was not the way to do it, but the government will need to explore other options if it wishes to see change. One area in need of review is risk warnings. At present, heavy risk warnings are placed on investment products, yet cash savings present an arguably greater risk for those who are looking to build their money for the long term. Placing risk warnings on both cash savings and investment products with the aim of ensuring savers better understand the benefits and risks of each asset type may be an area the government could explore.
“For those looking to make the jump to a stocks and shares ISA, you must decide how much investment risk you are comfortable with. If you are unsure, seek financial advice. Investing in the stock market requires a long-term horizon – a minimum of five years, ideally ten years or more – and you should aim to diversify your holdings. In this new era, it’s crucial to stay informed and explore investment options to ensure your savings don’t lose their value over time.”
