Why Brits are backing cash and shunning the stock market
Brits are sitting on a record amount of cash and shunning the stock market – Elliot Gulliver-Needham looks at why the UK has become a nation of savers.
UK cash savings have surged to a record £2.1 trillion this month, up more than £51bn since the start of 2024, according to new data from Janus Henderson.
But as Brits stow away trillions in cash, they’re lagging behind other countries in investing their cash in the stock market.
This isn’t just a problem for UK businesses, it is a problem for investors themselves. Cash savings have returned less than a third of that returned by stocks and shares this year, according to Janus Henderson.
Despite these figures, a majority of Brits still believe cash is the best way to save for the long term and more believe it is a better inflation hedge than stocks and shares.
“While it’s never been easier for people to take their first investing steps, it is clear that there’s a real understanding gap about how and when different savings and investment vehicles should be used for different money ambitions,” said Dan Howe, head of investment trusts at Janus Henderson Investors.
The surge in interest rates from the Bank of England led many investors to flock to cash, especially during the market wobbles during the pandemic.
“While markets have improved, the cost-of-living crisis has made people feel insecure and consider that they need more ready cash available – clearly long-term this isn’t likely to be the right financial decision,” said Olivia Bowen, partner and financial adviser at Castlefield.
Though the pile of cash in savings accounts could slowly migrate towards the market as interest rates are cut by the central bank, this hasn’t begun to happen yet. It isn’t clear when it will start.
Usually, investors decide to keep their savings to cash only when the market is doing poorly, but the UK market has been delivering a solid performance recently, noted Edward Allen, private client investment director at Tyndall Investment Management.
However, downbeat messaging about the economy from the government and in the media, along with the surprisingly high volatility markets in the markets since the pandemic, might be turning off investors from making that leap, analysts say.
“We’re living in a world characterised by greater geopolitical risk and economic uncertainty,” said Scott Dakers, business development director at Square Mile Investment Consulting and Research.
“To turn the savings tide, we need to see greater stability in markets, in economies and in the world in general.”
Investor confidence was also a key issue flagged by analysts, as investing is still broadly seen as too complex, according to Camilla Esmund, senior manager at Interactive Investor.
Interactive Investor has found that the most common barrier for consumers to invest was a lack of general knowledge and understanding of investing, followed by concerns over losing money and fear of market volatility.
Finally, the tax benefits of cash ISAs have been incredibly attractive for Brits, leading many in the investment industry to campaign for a change in the ISA system.
“With some providers still offering cash ISAs with easy access rates of five per cent and higher, there is not a huge incentive to move money out of a risk-free product with decent returns into a riskier product,” said Maximilian Bierbaum, head of research at think tank New Financial.
“If the government wanted to encourage people to invest more of their money, it could think about adjusting the tax incentives that are on offer on cash ISAs and stocks and shares ISAs to incentivise people to shift money from their cash ISAs into stocks and shares ISAs,” he added.