UK savers could be wasting the opportunity to earn extra income on their savings as lockdown and recession fears push investors to save cash at a record pace.
In the first six months of 2020, investors stashed away a record £77bn, meaning a staggering £1.5 trillion of cash is tucked away in savings accounts, according to Janus Henderson Investment Trusts.
This cash pile is roughly equal to the combined value of all UK residential mortgages. But savers are only earning a small amount of interest – just £5.7bn this year – as rates reach near record lows. Yields on equities are near record highs which means that in the past 12 months investors have missed out on around £38bn in income, equivalent to £1,350 for every household.
Personal finance experts tend to recommend households set aside three months of income to help weather any sudden change in circumstances. But the data shows savers have, this year, put away over four times this amount meaning banks have around £.12 trillion in spare cash that their customers could be investing elsewhere.
Banks and building societies call this “muppet money” because they know investors are missing out on other opportunities.
Equities are, at the moment, a more attractive bet even as UK companies slash dividends amid the global uncertainty. Link Group’s recent dividend monitor forecasts companies will pay between £56.3bn and £60.5bn.
Investment trusts like the City of London, which invests primarily in UK equities, managed to ride the storm and maintain its payout through the crisis.
James de Sausmarez, director and head of investment trusts at Janus Henderson said: “Over the long term, investing in shares has not only provided a healthy income, but also the scope for capital gains too, protecting savings from the ravages of inflation.”
“In my view, interest rates are set to stay low for a very long time, so there is no light at the end of the tunnel for cash”, he added.