InvestmentsAug 23 2016

Inflation hike puts cash savings at risk

twitter-iconfacebook-iconlinkedin-iconmail-iconprint-icon
Search supported by
Inflation hike puts cash savings at risk

The vast majority of savers who keep their money in cash accounts could see the value drop, as experts predict inflation will hit 3 per cent by the end of the year.

Research from digital wealth manager MoneyFarm found 81 per cent of the savers risk a fall in the value of their savings by keeping their money in cash accounts, particularly in light of the EU referendum.

According to experts, inflation is likely to reach 3 per cent by end of 2016, which could further threaten savings which are kept in cash accounts.

With the average Cash Isa paying just 0.65 per cent, MoneyFarm said savers need to start considering alternatives.

Of the 761 savers surveyed, 18 per cent said it was too difficult to decide what to invest in, while 11 per cent said investing in other asset classes - instead of cash - is too cumbersome.

These findings come just weeks after the Bank of England decided to lower interest rates.

The Financial Conduct Authority recently warned that interest rates on some cash Isas were already as low as 0.01 per cent.

Giovanni Dapra, chief executive at MoneyFarm, said the post-Brexit market superficially makes savings in cash accounts more attractive to risk averse investors, but over time that cash will actually underperform.

He said investments can be structured to “absorb” hits caused by market volatility, such as the recent fall in sterling.

“Savers might be nervous about investing or think that leaving their money in cash accounts is the easy choice, but in the current Brexit climate, cash accounts are a high risk option.”

Mr Dapra suggested the financial services industry as a whole needs to address the concerns and misconceptions of savers about investing, adding the industry should reduce fees and offer low-cost advice to make investing easier to understand.

katherine.denham@ft.com