Comments from True Potential Managing Partner, David Harrison
First published on Personal Finance Today.
Figures from the Financial Conduct Authority (FCA) have shown that savers are missing out on better returns. Almost one third were not aware of whether a variable or fixed rate applied to their main savings account, with many not considering that they could earn a higher return by moving to a different account.
I believe that it needs to be made easier to save in a way that adds value. The FCA’s interim report into the UK savings, a ‘Cash Savings Market Study‘, shows that 82 per cent of adults have cash savings and are not taking advantage of the growth that can be achieved by investing in stocks and shares.
Savers are losing out because they are not aware of the savings accounts on offer, with accounts opened more than 5 years ago only offering 0.3 per cent interest, whereas accounts opened in the past 2 years offer 0.8 per cent interest. According to the FCA, out of those customers with balances of more than £50,000, 39% were opened more than five years ago and so are subject to lower interest rates.
Our research findings reinforce the message that savers are missing out on better performing accounts. In our recent ‘Tackling the Savings Gap’ consumer attitudes survey, we asked how people intended to invest in their New Individual Savings Account (NISA) this year. Nearly half of the respondents (44 per cent) said they were intending to invest in cash only, with just five per cent planning to invest in better performing stocks and shares.
The FCA statistics show that the average savings account in the UK holds £6,400, taking this figure we can work out how much money people are missing out on by leaving their money in low interest rate cash savings accounts. Investing this £6,400 in an account offering 0.3 per cent interest would provide a return of £19.20 after a year. Conversely investing the money, with a balanced approach, into a stocks and shares account returning five per cent growth could see a return of £320, tax free.
So, what can be done to empower savers to invest in a way that adds value? Technology has an important part to play in making saving and investing an accessible and simple part of everyday life. Our True Potential Investor online investment service, available for download to Apple and Android devices, is designed to encourage more people to invest. True Potential Investor includes a first-of-its-kind impulseSave® feature, enabling savers to add to their investments at the touch of a button on the web or a mobile device.
Through a combination of better financial education, technology to make investing simpler and more accessible financial products, we can help to create a nation of confident savers that are well prepared for their future.