Savers missed out on £31.2bn of potential extra income, despite cash deposits swelling to a new record by the end of 2017, according to latest research.
Research from stepstoinvesting.com said the interest earned on cash deposits by UK savers fell to its lowest level in at least 20 years. UK houseoholds had £1.32trn saved in cash, spread across ISAs, savings accounts and current accounts. Despite these record high balances, savers earned a record low £4.6bn in interest, down almost a quarter from the £6bn earned in 2016.
By contrast, in 2007, the last full year before the financial crisis, savers scooped £33.1bn in interest - over seven times higher than that earned in 2017
The research showed that total cash holdings should equal approximately £340bn of the £1.32trn that is currently held in cash. Furthermore, it found that there is a surplus £963bn sitting unproductively in cash accounts. If the surplus cash had been invested in UK equities last year, savers would have earned £34.8bn in dividend income, instead of £3.4bn in interest.
“The amount of potential income that savers are missing out on is staggering and that’s before we even consider the impact of inflation,” stepstoinvesting.com head Simon Longfellow commented.
“This is happening because most savers are unaware of the potential benefits of investing or do not feel confident enough to put their money into these higher yielding alternatives. As a result, cash balances have continued to grow bigger and bigger as a proportion of national household income. Although we saw interest rates rise, savers shouldn’t be fooled into thinking they’ll see a much of a difference to their savings. For example, on a balance of £1,000, the 0.25% rise equates to earning just an extra 21p a month. And even one month on, many banks are still failing to pass the new rate on.
“As such, savers need to be aware of other options to make the most of their money. An alternative to holding money in cash savings is to invest it, but naturally people are fearful of what they do not understand. The whole investment industry speaks a language that beginners just do not understand and, to them, the risk of investing can often just seem like a bet on black or red. This is why the obvious remedy is education.”
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