Most Britons owning £10,000 keep 75% of it in cash, but is it wise to encourage them to invest instead?
Britain has a savings problem. One in five Britons holds savings of £25,000 or more, yet a staggering 61% of those with investible assets over £10,000 keep most of it in cash rather than investments. The Financial Conduct Authority (FCA) has identified this issue and aims to encourage a shift from hoarding cash to mainstream investments. Meanwhile, around one in ten people have no savings at all to cover an emergency.
The FCA's data shows that high interest rates on cash over the past few years have led many people to put their savings into cash accounts instead of investments, according to investment analyst Dan Coatsworth of AJ Bell. The FCA is trying to encourage people to consider mainstream investments, but Rachel Reeves is considering slashing the cash ISA allowance, which might push even more people to invest their tax-free savings.
However, the FCA's report raises questions about mixed messages, as it also highlights the large number of people with no cash savings at all. A typical financial advice recommendation is to hold at least three to six months post-tax income in cash savings as an emergency fund for someone earning £40,000, which would be between £7,200 and £14,400. Yet, a recent This is Money poll revealed that 12% of respondents had less than £25,000 in savings and investments outside of their ISA, while 18% had more than half a million pounds.
The Citizens Advice Bureau (CAB) conducted a survey last year which revealed that just 13% of people had enough savings to cover three months' worth of essential spending. It's clear that more needs to be done to educate people on the importance of saving and investing.
The government wants to encourage a shift towards investing to boost economic growth and is expected to launch a review of ISAs within weeks. The treasury is also preparing to consult with the City of London to explore ISA reform options. Investing is often seen as inaccessible or not a priority for those with low or no cash savings. Moreover, a lack of understanding about investing is another main problem.
The Investment Association states that many people in the UK may be taking one of the biggest financial risks of all - taking no risk. They advocate for a culture of inclusive investment that educates and encourages people across the country to make informed financial decisions that benefit them both now and for the long term.
What can you do?
- Keep at least three to six months of essential spending in cash savings for emergencies.
- Research and understand the benefits of investing and consider diversifying your savings across different ISAs.
- Stay informed about any changes to ISA rules, and plan your savings strategy accordingly.
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- The Financial Conduct Authority aims to encourage a shift from hoarding cash to mainstream investments, as Britons are found to keep most of their investible assets in cash instead of investments.
- The FCA's report highlights the importance of understanding the benefits of investing and diversifying savings across different ISAs for a well-rounded personal-finance strategy.
- To secure a sufficient emergency fund, it is recommended to hold at least three to six months post-tax income in cash savings for those earning £40,000, depending on individual circumstances.
- The Investment Association advocates for a culture of inclusive investment that educates and encourages people from all walks of life to make informed financial decisions, reducing the risks associated with taking no risk in their savings and investments.
