Could falling interest rates be the motivation savers need to invest?

Much to the government’s frustration, Brits are famously keen savers, but falling interest rates could be the encouragement some need to begin investing.

Savers may already be starting to change strategy, according to the latest data from one of the UK’s largest investment platforms.

In the first six months of 2025, Hargreaves Lansdown customers moved more money from banks and building societies into stocks and shares ISAs than in the whole of 2024.

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Forty-nine percent of transfers have come from cash ISAs held with banks and building societies. This is up from 30% in 2024, according to the latest data from the platform.

MoneyWeek has contacted some of the UK’s other large investment platforms to understand whether they are seeing a similar trend.

“We’ve reached a tipping point, where falling savings rates have convinced would-be investors that it’s time to take the plunge and make the most of the huge growth potential offered by investing,” said Sarah Coles, head of personal finance at Hargreaves Lansdown.

She describes this as an “incredibly positive development” for clients. “Over 5-10 years or more, investments have far more growth potential than savings and can help people find their financial freedom far faster”.

Data from Barclays looking back over the past 120 years or so shows that equities have outperformed cash 70% of the time, based on a two-year holding period. If you extend the holding period to 10 years, it rises to 91% of the time.

If sustained, the uptick in investment will come as good news to the government. Chancellor Rachel Reeves is keen to spark an investment revolution to lift UK markets and drive long-term economic growth.

At her Mansion House speech earlier this summer, Reeves announced plans to deliver an educational campaign on the long-term benefits of investing. “For too long, we have presented investment in too negative a light, quick to warn people of the risks, without giving proper weight to the benefits,” she said.

Before this, Reeves was reportedly thinking about cutting the annual cash ISA allowance in an effort to encourage investment, potentially reducing it to as little as £4,000 or £5,000. These plans appear to have been shelved for now.

Falling savings rates

In late 2023, many of the best savings accounts offered rates above 5%. Some of the top deals have now started to disappear in response to base rate cuts.

The Bank of England has cut interest rates five times from a peak of 5.25%, most recently reducing the base rate to 4% on 7 August.

While the Monetary Policy Committee seemed divided at its most recent meeting, narrowly voting for a cut by a 5-4 majority (and only after two votes), further cuts look likely before the base rate settles at a more consistent level.

Deutsche Bank thinks we will see one more cut this year, followed by two more in 2026, with rates settling at 3.25%. Financial institution ING also thinks we will see three more cuts in total, with the first of these potentially coming in November.

Savings rates are likely to fall further over the coming months as a result. The average easy-access savings account currently pays 2.64% according to Moneyfacts – significantly lower than inflation.

By shopping around, savers can secure a better deal, but investing in a diversified portfolio of investments could also be a good way to beat inflation and secure long-term growth.

Once you have built up enough cash to cover emergencies and meet any short-term savings goals, it could be time to start a stocks and shares ISA. A minimum investment horizon of five years is generally recommended to help ride out any short-term market volatility.

“Our research consistently shows that investing can be really intimidating, and many don’t know where to start. However, even small or modest contributions can make a big difference over time,” said Camilla Esmund, senior manager at investment platform Interactive Investor.

“The earlier you start investing, the better, as long-term growth benefits from the power of compounding. Plus, regular investing allows you to drip-feed money into the stock market, helping to smooth out volatility while building a healthy investing habit.”

Saving versus investing £1,000 per year

ISAs were first launched in 1999, over 25 years ago. Looking at how investments have performed over this period compared to cash helps highlight the important role of markets in building long-term wealth.

Analysis from investment platform AJ Bell shows that investing £1,000 a year into global equities (as represented by the IA Global Sector) would have left an investor with £83,603 by the end of 2024.

Putting the same amount of money into the average cash ISA would have left you with £34,392 over the same period – a difference of almost £50,000.

When you factor in inflation, AJ Bell’s analysis shows that cash savers would have actually lost money in real terms over this period. Although their ISA contributions of £25,000 would have grown to £34,392 in nominal terms (thanks to savings interest), this rate of return actually trails behind the rate of inflation over the 25-year period.

“That’s not to say that everyone should ditch cash and bonds, as safe havens have a key role to play in people’s portfolios. Some people prefer the security of knowing their money is safe from market fluctuations, while others need short-term money or easy-access savings,” said Laura Suter, director of personal finance at AJ Bell.

“But it shines a light on the missed wealth opportunities for those who are defaulting to cash and not taking that first step into investing. Being in cash should be a conscious decision, rather than unthinkingly hoarding it.”

The best approach for most people is a balance between the two. Our beginner’s guide shares some useful tips for those who are thinking about investing for the first time, including when to start, how much money you need, and what sorts of funds you can consider.

If you don’t feel confident picking your own individual investments, a ready-made fund that includes a broad range of investments could be a good option.