Britain is a nation of regular but unhappy savers

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Britain is a nation of regular savers, according to new research from AXA Investment Managers (AXA IM), the investment management company. Over half (54%) of the nation’s adults put money away every one to three months in the past year, and this increases to almost two thirds (63%) for those that saved money at least every six months.

Despite these promising figures, almost half (47%) of those with cash savings in a bank or building society are unhappy with the interest rate they are receiving. Of those aged 55 and over, two-thirds (64%) were unhappy with their cash rates, compared to just under a quarter (23%) for 18 – 34 year olds.

Richard Marwood, manager of the AXA Distribution Fund, said: “It is encouraging to see that so many Brits are managing to save regularly, despite the difficult economic environment we have found ourselves in. However, prudence is not paying off, as many people who are saving regularly into a cash account will actually be seeing the value of their money decrease over time as cash rates aren’t keeping up with the rate of inflation.”

Inflation disconnect

At the end of 2013, the average interest rate on easy access cash accounts was around 0.8% for those opened in the last two years, but less than 0.3% for accounts opened more than five years ago. However, in the year to July 2014, consumer price inflation rose to 1.6% and the retail price index rose 2.5%, suggesting people are seeing the value of their money decrease. Despite this, the survey shows that only a third of people (34%) are concerned about inflation decreasing the spending power of their savings.

Richard Marwood comments: “When thinking about inflation, many think of the cost of everyday items increasing, as our survey showed, with 69% of people stating this as a concern. However, inflation can also have a big impact on savings. There is an obvious disconnect in views on inflation when thinking about spending and saving. The aim for most people when saving or investing should be to maintain or increase the long term purchasing power of their money. In order to achieve this, cash rates or investment returns need to at least match the rate of inflation.”

What’s the alternative?

The research showed that none of the discontented savers are moving towards alternative ways of saving, such as investments, despite their frustration. One in two (53%) UK adults said that they have looked at other savings options but they did not appeal, a fifth (19%) said they do not have enough money in the bank for other types of savings, while a tenth did not know what other options they had.

Richard Marwood comments: “Investing need not be daunting or something exclusively for those who have a lump sum to put away. All it takes is to channel some of that regular saving each month into an investment account rather than a savings account. There are many funds available that can be invested in from as little as £50 a month, that are also available within a Stocks & Shares ISA, so have added tax benefits. There is no need to go gung-ho into stocks and shares either, as you can get investment funds that can be suitable for the cautious investor and are just one step up from cash.”

Mixed asset funds can be suitable for the relatively cautious investor as they hold a range of assets with the aim of providing smooth, consistent returns. An investment in one of the more cautious sectors, such as the IMA Mixed Investment 20% – 60% Shares sector, did very well last year as 2013 was a strong year for equities, returning 9.0%. The AXA Distribution Fund, which sits in this sector, returned 10.1% over this period.

Richard Marwood continues: “Many people may feel having cash in a bank account is safer than stocks and shares. However, in the current environment there are alternatives to savings accounts even for the relatively cautious, that can help combat the combined effects of inflation and low rates on savings.”

 

 

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