Comments by David Harrison (Managing Partner, True Potential LLP)
Is it possible to offer interest rates that are consistently below the rate of inflation and still attract the desired level of investors? Unfortunately, at present, the answer seems to be yes.
When we recently surveyed over 2,000 people as part of the True Potential Savings Gap survey, just 9 per cent said they are planning to invest in stocks and shares ISAs despite the fact that they offer the potential for the highest returns.
At True Potential we have been saying for some time that banks and building societies deserve to experience a backlash after years of offering poor returns on cash savings, yet 63 per cent of those surveyed said they still intend to invest in a cash ISA this year. Worryingly, the majority of savers seem content to invest in a way that adds no significant value to their savings.
At the same time, 39 per cent of those recently surveyed have never switched ISA providers. This has to be put down to complacency and it’s not surprising, therefore, that banks have become complacent.
With banks’ coffers swollen by the Government’s Funding for Lending scheme, this complacency has translated into a reduction in the number of cash ISAs currently available. At this time of year, we are usually in the midst of a battle for cash ISAs, with banks and building societies competing to attract money but according to analysis, far fewer new cash ISA savings accounts have been launched to date than in previous years.
In January 2012, there were a total of 91 cash ISAs that were either new launches or new issues of fixed rates. This compares to 27 in January 2014.
All of this reinforces how crucial it is to consider a range of options when deciding how to make the most from your savings. Part of solving the savings crisis that exists in the UK is enhancing knowledge around alternative ways to save.
How savers choose to use their ISA allowance this ISA season is yet to be seen, but one thing is clear: the cost of living crisis affecting Britons today means that surplus money is more precious than ever. Think carefully about how to make that money work hard for you.
Your capital is at risk. Investments can fluctuate in value and you may not get back the amount you invest. Past performance is not a guide to future performance. Tax rules can change at any time.