DO you have your savings in a cash account, so that they are easily accessible?
Then this article should provide some food for thought - particularly if you are a woman.
One of our regular topics of conversation in this column this year has been: ‘Don’t save – invest’.
With inflation now at nine per cent, holding your money in cash will inevitably see its buying power eroded as your interest rate lags far behind rising prices. They don’t call inflation ‘the silent bank robber’ for nothing.
With perfect timing, HMRC have this month published some new research* that throws light on saver and investor behaviour, focussing specifically on ISA accounts, and particularly on how they are used by women.
According to latest figures, over five million women took out Cash ISAs in 2019/20, compared with 4.12 million men.
The issue: Is it wise to save into a cash ISA, or invest some or all of your money, if you can, with the possibility of stronger growth in a stocks and shares ISA?
Men tend to go for the stocks option more often: In 2019/20, 1.57 million men took out a stocks and shares ISA compared to just 1.16 million women – even though women account for the majority (52 per cent) of ISA holders.
Women seem to prefer to keep their money in cash, so that they have it close at hand via their local ATM, rather than put it into investments where it takes longer to access. These days, however, inflation ensures that saving in cash comes at a high price.
First, women generally have less in their ISAs, £21,834 on average, while men have more with an average of £23,825.
There has become known as the ‘gender ISA gap’, and it is linked to that other gap that restricts women’s finances, the gender pay gap.
Women tend not to earn as much as men. This means they often need to keep their money close at hand for unexpected events and emergencies, and have less they can invest.
Then there is the likelihood that women’s incomes are less secure, as they tend to take breaks in their career.
We have spoken in the past of the so-called ‘motherhood penalty’, where women often take a few years out from their career when their first child arrives.
That moment is an expensive time, and this is another factor that has made women think twice about the higher risk of stock market investments, and led them to flee to the relative safety of cash – except of course, cash is no longer so safe.
HMRC show us that the more you earn, the more likely you are to have an investment ISA. As a general pattern, we tend to favour the cash ISA until our income reaches £30,000, after which we tend to feel able to switch over from saving to investing.
The gender pay gap and lower incomes therefore predisposes women towards cash saving.
However, as I say, in the longer term, stock market investments tend to outperform cash, often by a long way.
Last week we mentioned that if you had saved one of the new 20p coins in an easy access bank account when the coin was introduced in 1982, it would be worth 79p today, whereas if you had invested it in stocks using a FTSE All-Tracker Fund, it would now be worth £2.51.
Of course, stock markets are famous for their volatility, and the value of your investment will fluctuate under the influence of market movements.
The markets took a nosedive as we entered 2020, for instance, as we realised we had a Covid pandemic on our hands, at a time when we were already dealing with all the uncertainty of Brexit.
(Both the first UK Covid case and then Brexit hit us in the same week: Covid on Wednesday, January 29h and Brexit on Friday, January 31s 2020.)
However, as our figures show, you are likely to do much better with stock investments over the longer term, 5-10 years or more, while cash savings are being nibbled away by inflation.
If you currently have your money saved in a cash account, but are in a position to invest some for the longer term in a stocks and shares account, that could be just the way to stay ahead of inflation, or at least reduce its negative impact on
your buying power.
Well, then. Is it time for you to make the switch – ‘Don’t save, invest?’
*Annual Savings Statistics 2022 – GOV.UK
Michael Kennedy is an independent financial adviser and pensions specialist and can be contacted on 028 71886005 . Further information on Facebook at Kennedy Independent Financial Advice or at www.mkennedyfinancial.com
