With no ordinary cash savings accounts now outpacing inflation, savers may have little choice other than to take on more risk if they want to stop the value of their nest eggs being eroded, investment experts have warned.
With the Consumer Prices Index (CPI) inflation measure now at 2.7 per cent, there is a significant gap between price rises and savings rates.
Inflation is forecast to increase further, and experts from financial information group Moneyfacts, said it will be “increasingly difficult” for consumers relying on cash savings accounts.
“Savers are unlikely to see a significant improvement in the cash savings market for quite some time, and the only indication of when the Bank of England may raise rates isn’t expected until we have left the European Union at the earliest.
"In fact, even when this does occur, there is no guarantee that cash savings rates will improve overnight,” said Rachel Springall, finance expert at Moneyfacts.
“Consumers will need to be savvier than ever with their cash if they want to see a decent return, and they should attempt to acquire products that suit different goals.”
Moneyfacts said that there were 68 products with savings rate rises in April, but there were also 37 rate reductions, which Ms Springall described as “small signs of improvement”.
Ms Springall said it now “may well be the time for these savers to consider alternative investments, such as stocks and shares”, as well as taking advantage of products such as Lifetime Isas.
| May-12 | May-15 | May-16 | May-17 | |
| Total number of Cash ISA Products | 418 | 333 | 324 | 366 |
Earlier today FTAdviser exclusively revealed demand for the controversial Lifetime Isa savings product has breezed past expectations.
The new Isa lets individuals under the age of 40 save towards their first home or towards retirement, with users being able to claim a 25 per cent government bonus on contributions up to £4,000 a year.
Figures from Hargreaves Lansdown revealed that 18 per cent of its Lifetime Isa investors are 39-years-old, therefore scraping under the age threshold.
Danny Cox, chartered financial planner at Hargreaves Lansdown, said the older investors are opening an account so they can contribute savings throughout their forties, and therefore get the accompanying government bonuses.
The FTSE 100 wealth manager has seen 13,319 Lisa accounts opened so far.
Mr Cox said it was “little wonder” the Lisa has proved popular as it offers a generous government bonus.
Moneyfacts Ms Springall stated it was clearly now time for savers to reassess their options.
The average return on cash Isas over the past year was just 0.97 per cent while over the same period the average stocks and shares Isa returned growth of 16.5 per cent, Moneyfacts reported.
“If savers decide to invest their cash into investment funds, they must be vigilant of fund management charges and keep in mind that the value can go down as well as up.
"However, the growth potential may well persuade some to consider this option.”
But financial adviser Adam Walkom, from Sterling & Law in Richmond, said that clients’ appetite for risk often doesn’t change just because it is harder to find returns.
He said: “It is tricky, because the appropriateness of stocks and share investments depends entirely on a client’s appetite for risk. Clients are not always happy with that.”
rosie.murray-west@ft.com
