In recent years, the rates offered by the UK’s savings accounts have been notoriously low…but could things be changing?
At the time of writing, some UK institutions were offering impressive annual interest rates, including:
- Family Building Society Online Saver (4.35%)
- FirstSave Notice Account (5.00%)
- Close Brothers 1 Year Fixed Rate Bond (6.00%)
With markets so volatile and the cost of living so high, advisers are having more and more conversations with clients about whether saving could be a better choice than investing. According to results of The Schroders UK Financial Adviser Pulse Survey, 90% of advisers had spoken with clients about the benefits of cash saving compared with longer term equity investing, with 89% of advisers (compared with 53% in November 2022) stating that some clients had adjusted investment plans as a result of the cost of living crisis.
Is cash always king, though?
It’s all about timing
With living costs high, the economy faltering and mortgage rates rising, many people are understandably concerned about their ability to weather the current financial storm. It’s likely that this is the reason why so many more people are looking at saving rather than investing: with a guaranteed AER and the ability to withdraw funds at short notice (depending on the type of savings account), saving allows consumers to grow their assets while still being able to access their funds quickly if needed.
However, many investors are in it for the long run. The 2023 Barclays Equity Gilt Study reveals that in the 20 years to 2022 – a period that wasn’t great for the UK stock market – shares offered an annual return of 2.9%, compared with -1.1% for cash. The same study also highlighted a 91% probability of equities outperforming cash over a 10-year period.
Is diversification the answer?
Many experts recommend that investors diversify their portfolios regardless of the situation, making it more likely that any turmoil in a single sector or asset type can be weathered. However, given current high savings interest rates and the increase in annual pension allowances, others are suggesting that savings accounts and an increased focus on pension contributions could sit well as part of a savings and investments portfolio.
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