Almost 80% of the ISAs bought by UK savers are Cash ISAs1
For some people cash may be the right investment choice, but many pick it because we do not know what else to do with our money. Investing = boring, complicated and risky. Everyone knows cash is safer and you can never lose your money, right?
If you held £1000 in your bank account for six years earning zero interest, but inflation was at a steady 2% throughout that time, then your ‘safe’ investment would only be worth £880 in real terms, by the time you come to spend it.
Even if you bought a cash ISA with a typical rate of 0.78%2 you’d still be looking at a real-term loss, because the purchase power of your money is eroding faster than your money grows.
That, my friends, is inflation…. Over time, the price of things tends to go up. A pint might have cost your dad 40 pence in 1982, but it sure doesn’t anymore.
There’s a big ‘but’. Cash savings are an essential part of good financial management. Experts agree three months’ expenses is a reasonable amount to keep as an emergency fund you can fall back on in case you need it, so make sure you have one. What you do with any remaining savings will depend on your goals and your attitude to risk.
So, what can I do? (I hear you cry)
You could go on a big shopping spree and spend all your money now before inflation takes another bite.
Or you could put your money to work in the global stock markets by investing it.
And if you don’t feel you have the skills to invest it yourself, then there’s online investment services like Wealthify out there to do it for you, and they don’t cost the earth either.
If you’re still unsure, here’s a thought to leave you with. Research shows that over recent decades people who invested in the FTSE 100 for 10 years at a time had a 95% chance of making money3.
Please remember that the value of your investments can go down as well as up and you can get back less than invested. Past performance is not an indicator of future growth. With investing, your capital is at risk.
1 HMRC ISA statistics Report 2017: View PDF report at gov.uk
2 Typical cash ISA rate in February 2018: Source BBC News
3 This is money, Feb 2016: View article at www.thisismoney.co.uk
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The comments and opinions expressed in this article are the author's own and should not be taken as financial advice from Wealthify.