Savers are wasting a fortune by keeping their money in cash only. They may as well be burying the £735 billion they’ve collectively put by in a sock in the back garden for all the good it’s doing them.
The figure was revealed by investment platform Selftrade, which also found that 62 per cent of savers leave their money in cash. Of those who have bank and building society accounts for the money they squirrel away, two-thirds keep it in their current account, just over half use ISAs and 16 per cent have a piggy bank.
Only a quarter of British adults hold investment products, according to the company, and only 10 per cent take the trouble of shielding their returns from the taxman by using a stocks and shares ISA.
Of course, Selftrade is using these findings to peddle the merit of investing, but it makes a good point. At a time when savings rates are embarrassing – the Post Office hasn’t even bothered to disclose its ISA rates on its posters and leaflets – keeping all but emergency spending money in cash could be considered unwise. It’s certainly not the way to build wealth.
A new tax year is upon us and much has been done to encourage us to invest. The launch of the innovative finance ISA, for example, allows you to shield from tax any returns you make from peer-to-peer loans through the likes of Zopa, RateSetter and Funding Circle. Up until now, any money you’ve made from lending your cash to individuals and small businesses has been taxed at your usual rate.
You can invest your entire £15,240 annual ISA allowance into the new wrapper, or choose to split it any way you see fit between a cash, stocks and shares and innovative finance ISA.
If peer-to-peers loans aren’t your thing and you’re more of a traditional fund investor then the dividend allowance could be your new best friend.
The old and hugely confusing tax credit system is no more. Gone is the effective rate of tax on dividends for basic-rate taxpayers of zero, 25 per cent for higher-rate taxpayers and 30.56 per cent for additional-rate taxpayers. In its place is a shiny new £5,000 dividend allowance for all. Tax must then be paid on dividend income exceeding this amount. The amount depends on your tax band. Basic-rate taxpayers will be charged 7.5 per cent, higher-rate taxpayers 32.5 per cent charge and additional-rate payers 38.1 per cent.
The government says more than three-quarters of investors who receive dividend income ‘will either gain or be unaffected by these changes’ – although it’s not such good news for basic-rate taxpayers.
When Selftrade asked why people kept their money in cash, risk was the primary reason given and a quarter said they were put off investing because they don’t understand the stock market. One in six say they are worried about market volatility.
They are understandable concerns but these fears give rise to a phenomenon referred to as ‘reckless conservatism’. In short, the fear of investing blindsides savers to the risk of holding significant sums in cash – such as the diminishing effects of inflation. It’s time to be brave and try to build your wealth. Only sensible investing can help you do that.
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