Concerns mount over investors sitting in cash

According to Gordon Greig, head of savings and investments at Scottish Widows, there has been a decline in the number of people using property for their long-term savings, a move which he supports given the recent decline in the property market and house prices.

In the last 12 months, 8 per cent of people said they were using property for their long-term savings, compared with 38 per cent the year before. This is according to the findings of Scottish Widows savings and investment report 2009.

Instead of property, this year the most popular long-term savings investment vehicles are current and savings accounts and cash Isa’s. However, Greig said these vehicles are more suited to short-term saving goals.

He also warned that in the current low interest rate environment, there is the long-term impact of inflation to consider if funds are left in cash vehicles for a considerable length of time.

"Property has given way to cash and this is not necessarily the route people should be taking.

"We’ve seen a shift out of property which we support on the one hand but which we see going into cash and worry about because of the impact of inflation and the loss of potential future returns."

Andy Biggs, managing director at Scottish Widows, agreed that the default position for investors at the moment seemed to be cash "almost by accident". He added that the needs to change or the reality would be savings levels will not match investors expectations.

Biggs added that the fundamental issue is the 0.9 per cent savings ratio in the UK, which is significantly less other European countries where the savings ratio is on average 13 per cent.

"Whether it is invested in cash, property or put under the mattress it is not going to be enough, the point is addressing the gap."