InvestmentsAug 16 2021

Inheritances left in savings accounts over fear of poor decisions

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Inheritances left in savings accounts over fear of poor decisions

Almost half (46 per cent) of people who have received, or are expecting, an inheritance leave it in a current or savings account as they worry about making a poor decision, Hargreaves Lansdown has found.

A survey from Hargreaves Lansdown, published today (August 16), found out of 2,000 people almost half will leave their inheritance in cash, with 8 per cent leaving it in their current account, while 38 percent put it in a savings account.

It found men were three times more likely to leave an inheritance in their current account (12 per cent, versus 4 per cent of women), while women were more likely to leave it in a savings account.

Younger savers were more likely to leave the money in a bank or building society account, with 52 per cent of 18-34 year olds doing so compared to 41 per cent of 35-54 year olds.

Sarah Coles, personal finance analyst at Hargreaves Lansdown, warned inheritances could be squandered through excessive caution as people are worried about making a mistake.

Coles said: “If you’re still reeling from the bereavement and aren’t ready to make a decision, temporarily putting the money in a savings account with a decent interest rate can be a shrewd move. Alternatively, if you have a specific plan to spend it within the next five years, or are saving for a specific short-term goal, cash may be the best option.

“However, there’s also the risk we’re driven by the fear of doing the wrong thing. Ironically, while sticking an inheritance in a bank or building society account seems like a safe option it runs two risks.”

One risk is that inflation could cause the amount in the account to fall, the other is that only £85,000 is protected by the FSCS in any one account.

Coles explained: “With the Consumer Price Index measure of inflation hitting 2.5 per cent, and the average easy access savings rate a measly 0.06 per cent, beneficiaries will lose some of the spending power of their money by keeping an inheritance in cash. 

“Investing the lump sum instead could prove more fruitful, especially over the long term, and using the money to pay off debts or top up a pension may be a much smarter choice.”

Last week (August 10), research from Time Investments found nearly a third of over-55s had never checked how inheritance tax could affect them despite many believing their estates could exceed the threshold.

According to data from HM Revenue and Customs, IHT receipts for 2020-21 were £5.4bn, an increase of 4 per cent (£190m) on the tax year 2019-20.