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New research shows effect of saving into cash instead of equities

13 November 2018

Cash ISA savers have missed out on £127 billion over the past two decades because of a reluctance to invest their money in the stock market, according to research from Scottish Friendly.

The research shows savers have received £75 billion in interest since ISAs were first introduced in 1999. However, they could have netted themselves £202 billion in returns if they had opted to invest in the stock market instead.

Since the financial crisis ten years ago, the rates on cash ISAs have plummeted, while in contrast the stock market has performed well.

But despite the lower returns, the research showed that cash ISAs continue to remain popular, with 40% of people saving into a cash ISA, with more than half doing so on a monthly basis. By comparison, less than a fifth (18%) pay into a stocks and shares ISA and only one in 10 (11%) do so on a monthly basis.

Calum Bennie, savings specialist at Scottish Friendly, said of the findings: “The message to savers is clear: keep an adequate amount of money in an easy access cash account in case of emergencies, of course, but if you’re saving for the future then investing can offer potential for greater returns.

“The issue is many people are either afraid to make that first step into investing or have no idea how to invest. As an industry, it is our job to make their lives easier. If we don’t, then we are failing to provide people with the right knowledge and tools to secure their financial futures.”

The research revealed a lack of knowledge around the stock market, with nearly a quarter (23%) of respondents saying they do not invest because they do not fully understand how to. More than a fifth (22%) expressed concern about losing money, while 15% said they prefer the security they felt a cash ISA brings.

Bennie added: “Clearly there is a lot more our industry can do to wake more people up to the benefits of investing.”

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