New data shows cash savings still king for Brits despite risk of losing out on investment gains

by | Feb 8, 2024

Share this article

New nationally representative research from wealth manager Quilter, gathered by YouGov, reveals two thirds (66%) of Brits intend to use their spare cash this year on boosting their overall financial resilience.

Quilter’s research reveals that of those who expected to have some disposable income available to them in the coming year and intended to boost financial resilience in some way, two fifths (39%) of people intend to top up their cash savings, a quarter (26%) intend to pay off or reduce their debt, and one in 10 (11%) plan to overpay on their mortgage. 

Meanwhile, topping up long term savings and investments, such as pensions and stocks and shares ISAs, was named as a priority by just under a quarter (24%) of people.

 
 

Though it is a positive that so many people are looking ahead and planning to boost their overall financial resilience this year, there remains a significant amount of people who risk missing out on the benefits of investing. This is particularly the case for the two-fifths of people who are opting to keep their money as cash who could miss out on significant market gains should interest rates start to fall. 

To add to this, analysis from Quilter revealed that if the Bank of England cuts interest rates during 2024, as is widely expected, people sitting in cash could lose out considerably as in previous cases when the Bank has cut rates following the end of a hiking cycle, returns have been particularly strong in the following year.

Quilter’s analysis found that following the first rate cut in the 1990s, the MSCI UK Index returned 46.1% over the next 12 months. What’s more, in 1976 after interest rates were cut from 15% the UK market subsequently rose by 95.8%. The analysis also revealed that this is not just exclusive to equities. For example, a 10-year gilt purchased at a yield of 4.8% would generate a return of approximately 13% if the yield of the bond fell by 1%, highlighting the power any interest rate cut is likely to have for those remaining invested in the market.

 

Though not all moves are as extreme, this analysis clearly highlights that the market reaction is strongest in the early part of a rate cutting cycle. Those not prioritising long term savings and investments could not only lose out on investment gains, but as interest rates are cut, cash savings rates offered by banks will fall quickly too which will have an immediate impact on their cash savings returns.

Emma Prince, financial planner at Quilter:

“The cost-of-living crisis has had a huge impact on people’s finances, so it is encouraging to see that boosting overall financial resilience is a top priority. However, it is important that people consider how best to do this.

 

“Increasing financial resilience by building cash savings, paying down debts and making overpayments on mortgages are among the top financial priorities for Brits this year, but it is key that people do not overlook the benefits of investing for the longer term.

“The FCA’s latest Financial Lives Survey revealed there are nearly 8.6m consumers holding more than £10,000 of investible assets in cash. Though cash has felt like a relatively safe place to be for some time now given the higher interest rates on offer, our analysis shows just how much could be at stake if people miss out on elevated returns following any rate cuts by the Bank of England. Not only is boosting long term savings and investments such as pensions and stocks and shares ISAs important, but staying invested rather than ripping money out to put into cash holdings is also vital. In the same way that banks are quick to pass on rate hikes when it comes to interest on borrowing, they will be equally quick to claw back interest paid on cash savings. As such, if the Bank of England does begin to cut rates, savers will notice a rapid fall in any returns they may be getting. 

“Ultimately, everyone’s individual financial circumstances will determine the best course of action, so seeking professional financial advice wherever possible will help ensure you are making the best decisions to suit your own personal needs and goals.”

 

*All figures, unless otherwise stated, are from YouGov Plc.  Total sample size was 2,001 adults. Fieldwork was undertaken between 11th – 12th December 2023.  The survey was carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

Share this article

Related articles

Sign up to the IFA Magazine Newsletter

Trending articles

IFA Talk logo

IFA Talk is our flagship podcast, that fits perfectly into your busy life, bringing the latest insight, analysis, news and interviews to you, wherever you are.

IFA Talk Podcast - listen to the latest episode

x