A Which? survey* conducted earlier this month found 12% of people who plan to switch their savings in the next year want to move the cash into investments.
However, the popularity of some investment accounts has slumped. HMRC’s latest statistics show 126,000 fewer people held a stocks and shares Isa in the 2022/23 financial year than in 2021/22.
Read on to find out whether investing can bring better returns than saving, and for advice on what you'll need to consider before you start.
Please note: the content contained in this article is for information purposes only and does not constitute financial or investment advice.Why are fewer people investing in stocks and shares Isas?
Stocks and shares Isas have grown in popularity over the last decade, with deposits now much higher than the £17bn invested back in 2012/13.
However, the latest data reveals a drop in the number of people investing.
‘But it will also have been influenced by a period of high interest rates on cash in recent years, as well as a reduction in the amount of money people felt comfortable piling into investments during the cost of living crisis.’
This echoes data from the Financial Conduct Authority’s Financial Lives survey, which found that 53% of adults had stopped saving or investing, or reduced the amount they set aside amid a rising cost of living.
Those who could afford to save were more likely to take advantage of interest rates as high as 6% on savings accounts and cash Isas.
Find out more:Will your money grow more through investing?
Investments are perceived as being riskier than savings, but neither option guarantees your money will increase in real terms.
You don’t risk losing money when you save into a fixed-rate savings account or cash Isa, but you do risk the value of your cash being eroded by inflation.
For example, if you put £1,000 into a savings account 10 years ago that paid 2% yearly interest, you’d have £1,219 today. But, what would have cost £1,000 in 2014 would cost £1,343 today.
This means that even though the amount of money you’ve saved will have gone up, it won't be worth as much as it was a decade ago.
According to analysis of Morningstar Direct data by Schroders, in every 20-year period between 1926-2022, money invested in stocks grew faster than inflation, compared with just 66% of the time for money kept in cash.
Despite more money going into cash Isas each year, stocks and shares Isas are worth more overall. Cash Isas account for 63% of all Isa subscriptions, but stocks and shares Isa holdings account for 59% of the total market value of Isa funds.
Find out more:6 things to consider before you invest
When it comes to investing, you need to be mindful that the performance of investments in the past is no guarantee of the future, and you could lose money.
Before getting started, follow these tips:
Prioritise clearing any debts –Keep some savings back for an emergency –Invest for the long term – Don’t take on too much risk – Diversify – Make use of Isas– they are likely to switch savings providers in the next 12 monthssource https://www.which.co.uk/news/article/should-you-switch-your-savings-to-investments-aTUL52N08s3R