Opinion  

Cash Isas and savings accounts should carry risk warnings

Andrew de Candole

Andrew de Candole

We’ve all seen them: even those who have never bought an investment product in their life can’t fail to have noticed the prominent risk warnings plastered all over the adverts for such products alerting potential investors that their capital is at risk.

Caveats that the value of your investment can go down as well as up are vital in ensuring investors are alive to the possibility that they could lose money.

So why aren’t similar warnings required for low interest rate cash Isas and savings accounts?

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It’s our view that they should be.

After all, while investment products may fall in value there’s evidence that, thanks to rock bottom interest rates, the value of cash Isas is being destroyed in real terms.

Our research shows that last year, UK savers lost an eye-watering £32.5bn to inflation – despite interest rates rising for the first time in almost a decade.

That’s because average savings rates were just 0.5 per cent over the year, while inflation stood at 3 per cent at the end of 2017 – wiping out any interest earned and eroding the value of capital at the same time.

I’m willing to bet that very few savers are aware just how much leaving cash in low interest accounts is actually costing them.

Some may even be blissfully unaware that their capital is decreasing in value at all.

It’s clear that what many people see as the ‘safe’ option is in fact anything but, as interest rates continue to languish at historic lows for the best part of a decade.

Over £150bn in savings is held in accounts that earn no interest whatsoever – something that urgently needs to stop.

This is exactly why we are calling for risk warnings to be made mandatory on cash savings products, just as they are on investment products – to alert savers to the realities of what might happen to the value of their capital if interest rates do undershoot inflation in such a big way.

This is especially important for those using cash Isas or savings accounts to build up a pot of capital for their retirement.

Over such a long-term timeframe, the pitfalls of an ‘excess of caution’ may well be exactly the wrong strategy to adopt, with the adverse effects exacerbated over time.

Risk warnings would act as a vital red flag to enable savers to make better informed decisions about what kind of product is actually right for them.

The time has come to take action. At easyMoney, we think some real clarity in the market is long overdue, as is some real choice.

Investors need products that offer real returns, and they need to be empowered to take a sensible, calculated approach to risk in order to achieve this.