Savings accounts do not generate a healthy return according to financial professionals.
Finance workers are suggesting that savers should invest their cash instead of placing it in savings accounts.
Investing money could generate a better return for Britons as savings accounts are deemed a “waste of time” by experts, however as we all know investing is not without its risks.
With interest rates low and inflation rising financial specialists have warned that savings account products offered by UK banks and building societies fail to offer a real rate of return on deposited cash. Some industry experts have suggested that placing savings in high-yielding shares or funds may be a better option.
Darius McDermott, the managing director of independent financial advisers Chelsea Financial Services, said: “The simple fact is if you have £1 and you invest in cash, you will lose out once you take into account tax and inflation. Most savings accounts are just a waste of time. But if you put that £1 into to a good high-yielding fund you will make a return. Of course your capital could increase or it could fall. That’s the risk, but I would put my £1 into equities every single time”.
He added: “Savers have to face the truth at the moment. If they have built up a pool of capital over their lifetime and they want to live off the income, putting it cash is the wrong decision”.
Finance website Moneyfacts recently found that three accounts out of 2,203 offer a real rate of return for savers with only one suitable for higher-rate taxpayers. Here at Investment Sense we believe the number is higher, although there are still only a handful of accounts which offer a real return.
Victoria Mayo, spokesperson for the site, said: “Inflation continues to antagonise prudent savers who are already struggling to achieve a competitive return on their money. Those who rely on their savings to supplement their income have been hardest hit, many of whom are pensioners”.
This week figures were revealed showing that the Retail Prices Index measure of inflation rose to 4.7% in November. A study by consumer watchdog Which? found that the average British saver is losing out on £322 a year because of the poor level of interest paid out on savings accounts.
Moving money from savings into investments, in an effort to provide an inflation beating return is one option, however it is not without risk to your capital; we all know that shares can fall in value.
Savers tend to want less rather than more capital risk.Ideally for savers interest rates will rise in 2011 to a level where they start to pay a real return above inflation, this however would be unpopular with business and mortgage holders, but that’s another story.