Cash savings in the UK have hit a record level of £2.05 trillion. That is a lot of money. Collectively, it means we could clear around 80% of the UK’s national debt. Alternatively, we could buy up around 82% of the London Stock Exchange.
To put the figure further into perspective, the UK’s GDP is currently around £2.8 trillion – meaning our savings are equivalent to around 73% of the total UK economy.
These figures are based on analysis from asset management firm Janus Henderson, using data from the Bank of England, the Building Societies Association, and NS&I.
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“Great,” you might think, “we’re rich!” But the reality isn’t quite so positive, particularly when you look at the case for saving versus investing.
Of course, having a buffer of cash savings is a good thing. The general recommendation is three-to-six months of essential outgoings, unless you are on the cusp of a big purchase like buying a house and need more liquid funds.
If you find yourself regularly holding more than this, you should get clued up on the risks. The most obvious one is inflation, which many will have felt the effects of in recent years.
Inflation peaked at just over 11% in 2022. At this elevated rate, it would only take around six years for the value of your money to halve. If you were losing money at this rate in an investment fund, you would fire your fund manager.
Inflation has since slowed to 2.3% and, with interest rates still at a high level, many savings accounts are now paying positive real returns. But savers should still be wary, with interest rates expected to fall further in 2025.
Inflation is only one of the risks – you also need to consider the opportunity cost of hoarding too much of your wealth in a bank account when, over the long term, investment markets can deliver superior returns. We take a closer look at the case for saving versus investing.
The cost of not investing
UK savers earned £58.6 billion in interest between January and September this year, according to Janus Henderson, equivalent to an interest rate of around 2.93%. Remember that inflation has only been lower than this level since April – meaning the real return on your savings prior to this point was actually negative.
In the same period, the FTSE All-Share returned 9.9% in a combination of capital gains and income, while the MSCI World returned 13.4%. Compound the effects of this over the long term, and the difference is staggering.
| Investment start date | Value of original £100 investment today (MSCI World) | Value of original £100 investment today (FTSE All Share) | Value of original £100 sum today (cash savings account) | Loss of value of cash savings after inflation |
| 1990 | £2,482 | £1,448 | £231 | -1% |
| 1991 | £2,023 | £1,199 | £217 | 0% |
| 1992 | £1,717 | £995 | £207 | -3% |
| 1993 | £1,362 | £775 | £203 | -2% |
| 1994 | £1,365 | £823 | £196 | -3% |
| 1995 | £1,116 | £664 | £188 | -5% |
| 1996 | £1,079 | £569 | £182 | -6% |
| 1997 | £893 | £461 | £175 | -8% |
| 1998 | £723 | £405 | £167 | -10% |
| 1999 | £559 | £326 | £160 | -14% |
| 2000 | £595 | £347 | £153 | -17% |
| 2001 | £695 | £400 | £147 | -19% |
| 2002 | £955 | £517 | £143 | -20% |
| 2003 | £794 | £428 | £139 | -21% |
| 2004 | £739 | £379 | £135 | -22% |
| 2005 | £600 | £311 | £130 | -23% |
| 2006 | £567 | £266 | £126 | -24% |
| 2007 | £527 | £253 | £121 | -25% |
| 2008 | £637 | £361 | £118 | -25% |
| 2009 | £547 | £277 | £117 | -23% |
| 2010 | £472 | £242 | £115 | -22% |
| 2011 | £494 | £251 | £113 | -20% |
| 2012 | £443 | £223 | £111 | -19% |
| 2013 | £354 | £185 | £110 | -18% |
| 2014 | £316 | £183 | £109 | -19% |
| 2015 | £300 | £181 | £108 | -19% |
| 2016 | £233 | £155 | £108 | -18% |
| 2017 | £207 | £137 | £107 | -16% |
| 2018 | £212 | £151 | £107 | -15% |
| 2019 | £172 | £127 | £106 | -14% |
| 2020 | £152 | £141 | £106 | -14% |
| 2021 | £123 | £119 | £106 | -9% |
| 2022 | £133 | £119 | £105 | 0% |
| 2023 | £113 | £110 | £103 | 1% |
Source: Janus Henderson, based on MSCI and FTSE All Share total return as of 30 September 2024. Cash based on weighted average interest across all account types.
“Put simply, savers are not making the most of their hard-earned cash,” says Dan Howe, head of investment trusts at Janus Henderson.
“High interest rates and market uncertainty make cash savings a more appealing offer,” he adds, “but our research continues to show that their money could be doing more for them when invested, even in the high interest rate environment of the last few years.”
Indeed, even within the savings market, households are failing to maximise their money’s potential. Janus Henderson’s research shows the vast majority of savers are relying solely on variable rate accounts, with just £1 in every £6 saved so far this year going into a fixed-term account.
This means savers will suffer from further interest rate cuts which are expected next year.
Why aren’t UK savers investing?
In the UK, only 23% of people have invested in the stock market, according to an Opinium survey conducted by Hargreaves Lansdown earlier this year. Compare that to the US, where almost two-thirds of people have invested.
Why are UK savers so investment-shy? When the investment platform delved into the reasons behind the transatlantic divide, 26% of people said it was because Americans are more comfortable with risk than Brits. A fifth said it was because Brits prefer property.
Cultural differences could also be a factor, according to Hargreaves Lansdown, with Americans having to be more self-sufficient in funding medical bills and college education.
More broadly, when you speak to your friends and family about their thoughts towards investing, many simply don’t know where to start. Others think investing isn’t for people like them, having never seen their parents or grandparents do it.
Another common misconception is that investing is too similar to gambling. While speculating on a risky asset class like cryptocurrency might feel that way, investing sensibly in a diversified stock market index over a period of many years is a very different ballgame.
What savers also tend to forget is that not investing is a risk in its own right. The opportunity cost of leaving your wealth in cash can be huge.
US equities have averaged a return of around 10% per year over the long term. If you were to put £100 in US equities today and the market returned 10% per year, your investment would be worth more than £2,000 in 30 years.
Scale that up, and your return could be even bigger. If you were to put £1,000 in, your investment could be worth more than £20,000 over the same period (based on 10% average annual returns). Put £5,000 in, and your investment could be worth more than £100,000.
Naturally, there will be some ups and downs. In some years you will lose money if markets take a downturn. But, over the long term, history suggests there are more positive years than negative. Investing sensibly in a diversified portfolio for a period of at least five years, ideally more, should allow you to ride out any short-term bumps.
A low-fee global tracker can be a good place to start, mimicking the returns of an index like the MSCI World or the FTSE All World. These often have thousands of constituents, helping spread the risk.
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