Scottish cash savers underestimate the impact of inflation
Concerns have been raised that Scottish savers are not taking the impact of inflation into account when putting away money for a rainy day.
Recent research has suggested that a majority of Scots - 65% - believe cash savings are less risky than investing.
And three quarters (76%) aren’t aware that money invested in the stock market grows more over the long-term than the interest on cash savings.
According to new research from Alliance Witan., 29% of Scots believe cash savings hold their value over time while 18% think interest rates stay above inflation
And they found that 76% of Scots were unaware that long-term investing beats returns on interest-earning cash accounts.
Scottish savers were also found to be very risk averse, with 28% of Scottish non-investors citing risk as the factor stopping them from investing.
While there are always risks associated with investing, there are also risks with leaving money stagnant in a cash-savings account, according to capital growth company Alliance Witan.
Mark Atkinson, Managing Director of Willis Towers Watson, which manages Alliance Witan, comments: “While investing always carries a degree of risk, it remains the most effective way of building long-term wealth and preserving the real value of savings against the ravages of inflation.
“Our research suggests that many people either underestimate this benefit or place too much emphasis on short-term market fluctuations, leading them to favour cash holdings that may gradually lose purchasing power over time.”
When surveying those who do not currently invest, 28% cited the risk of losing money as the biggest barrier.
Those fears of the perceived risks with investing were a significant barrier for many - but it also highlighted a lack of awareness around the risks of holding savings in cash accounts over the longer-term.
Three in 10 (29%) Scots believed cash always holds its value over time, while a third (32%) were unsure if this is true, showing a general lack of understanding of the impact inflation has on the value of cash deposits.
The study found that 19% of Scots believe that the interest rate on cash accounts always stays above the level of inflation, while 34% weren’t sure whether this is the case.
Similarly, 18% believed that cash savings aren’t at risk from inflation, while 29% were unsure.
Awareness of the benefits of income investing is also worryingly low, as nearly half (49%) of those surveyed believed you only make money from an investment if the share price rises.
The research shows a significant lack of awareness of the value which dividend-paying companies and funds can add to a portfolio, and how reinvesting dividends can bolster the effects of compounding.
“If you’re thinking about taking your first steps into investing, it’s important to find a comfortable home for your money that aligns with your risk tolerance and time horizon,” said Mark.
“Resources like our Learning Zone are free and informative, highlighting the importance of diversifying your portfolio and taking a long-term perspective.”
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