With stock markets becoming more volatile in recent months, UK savers continue to favour cash – with some investors increasingly going down that route, too, as fund sales continue to drop.
Almost three-quarters of UK consumers’ savings is sitting in a cash ISA. Now, there is, of course, an argument that a large proportion of that should be transferred into a stocks and shares version of the tax-free savings vehicle, particularly with the measly interest rates on offer from cash products.
Indeed, the only way a UK-based saver can beat inflation in a cash ISA today is by tying their cash up for five years – and that rate can be beaten over the long term in the stock market. Most other cash products lag that 1.8% inflation mark, meaning you’re guaranteed to lose money in real terms.
There are stark differences between the two products in the long term, notes Laura Suter, personal finance analyst at AJ Bell.
Long-term stock market returns average around 5.5% after inflation, she explains. So, assuming a 7.5% annual return with 1% charges, a £10,000 ISA pot invested in stocks would be worth £18,771 after 10 years. In that same period, a cash account would have turned into just £11,605.
In fact, data from Fidelity International show if you’d invested the maximum cash ISA allowance every year since ISAs were introduced in 1999 into a cash ISA, that amount - £141,520 – would have grown just 3.2% to £146,070.
If that £141,520 had been invested into a the FTSE All-Share index, you’d have built up a pot worth £221,566.
That said, holding a rainy day pot of cash that is easily accessible and not at the whim of market volatility for emergencies can be a prudent tactic to employ. “Holding cash is smart if it’s to meet short-term spending needs as an emergency pot and if you want a low-risk investment,” says Suter.
With that in mind, we round up the best buys around today.
Cash ISAs
For the best results, you’ll have to lock your cash in for a period of around four or five years. Coventry Building Society pays 2.3% for a £1 minimum investment until end-November 2023, while United Trust Bank will pay you 2.3% and 2.2% for five-year and four-year bonds respectively but with a higher £15,000 minimum.
You can get 2.13% at Shawbrook Bank for five years with a £1,000 minimum investment, meanwhile, data from moneyfacts.co.uk show.
Charter Savings Bank pays 1.95% over two years or 1.75% for 12 months for a £5,000 investment, with Shawbrook Bank’s 1.91% for two years and 1.74% for one year on a minimum £1,000. For a lower minimum, of just £1, you can receive 1.9% from Coventry Building Society, which matures at end-May 2021, or 1.7%, which matures at end-May 2020.
Looking at easy-access variable rate ISAs, Coventry Building Society tops the best buys list at 1.5% for a £1 minimum investment, while OakNorth offers 1.465 for £1,000 and Virgin Money 1.45% for £1.
Savings Accounts
If you wish to lock your savings up to receive the best possible rates, Aldermore will offer 2.5% for five-year bonds or 2.45% for four years. A three-year fix from RCI Bank, meanwhile, will pay 2.36%. For a one-year fixed term, both Aldermore and Axis Bank offer 1.85%, while RCI Bank follows with 1.71%.
On easy-access savings products, RCI Bank pays a variable 1.425, while Leeds Building Society’s Cash ISA pays 1.41%.
