Bank of England figures are showing a significant increase in cash deposits by people across the UK during lockdown. But with interest rates on cash savings so low, is investing some of it wise?
Published on 11 Jun 20203 minute read
While so many people are struggling financially at the moment, there are also others who have found that – quite unexpectedly – they’re in a better financial position. Locked inside, with no going to work, socialising, childcare or holidays, there are fewer things to spend money on. And, in the midst of a health crisis and with the ravages of a recession looming, the evidence is that we’re knuckling down and saving to become more financially secure. According to the Bank of England, deposits rose by £16.2 billion in April (in the six months to February 2020 they rose by £5 billion a month).
The importance of a cash buffer is one of the many lessons that Covid-19 has taught us. Without savings to fall back on, we’ve seen how life can unravel at an alarming rate. The consensus is that you really need enough cash to tide you over for at least six months but, alongside your cash savings, have you thought about investing?
OK, saving cash is less risky than investing. You won’t lose your money like you can do if you choose bad investments, but with interest rates so low, your savings will struggle to grow. And when you take into account inflation and how, over time, it eats away at how much you can buy with your cash, taking on some investment risk could make sense.
When you invest, you do run the risk of losing money because – as recent market volatility has demonstrated – investments can go down as well as up. But history also shows us that over time, markets do recover and, if you choose your investments wisely, they can outpace inflation. You’ll also benefit from the effects of compounding if you leave your money invested, which means the amount you have should grow (and grow!) over time.
Stocks & Shares ISAs are really popular with both new and experienced investors because they are simple accounts that make it easy to buy, hold and sell investments. Unlike regular investment accounts, you also don’t pay tax on any investment gains, making them an incredibly savvy way to invest.
And while we would always suggest investing for at least five years (because, again, markets go up and down), Stocks & Shares ISAs are actually very flexible, letting you get to your funds immediately if you have to.
If you’ve got any questions, please do give us a call on 020 7189 2400. We’re here to help you.