Why saving rather than investing in UK shares can cost you a fortune!

It’s official! Saving in a cash account can end up costing you a fortune. Here’s why buying UK shares is a much better way to make money.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Is there a worse way to use your money than by saving in a cash account? The returns on products like these have long trailed what long-term UK share investors make. Things are getting worse too as Bank of England rate cuts prompt savings providers to keep slashing their interest rates.

The low returns that cash savers make is particularly worrying as the power of the State Pension dwindles. Around 11m Britons believe they won’t have enough money to live on in retirement and the number is likely to grow.

It doesn’t have to be that way, though. As I explain here, buying UK shares in something like a Stocks and Shares ISA can help you build a big nest egg for retirement.

Savers make 94% less than investors!

The shocking difference between what savers and UK share investors can expect to make is laid bare in a recent report. According to Charles Stanley, British savers have typically made 94% less than investors have during the past 10 years.

The investment specialists have looked at what £10,000 would have made cash savers of the past decade. The figure comes out at £11,230 since 2010. By comparison, investing 10 grand into global markets instead would have created an enormous £30,742.

The threat of inflation

Now cash savings accounts are extremely useful. They’re a great place to save money that you might need for an emergency. However, using them to build a nest egg for retirement is a deeply flawed strategy.

It’s not only that you lose out on making better returns by investing in UK shares, for example, that makes cash accounts such poor wealth-creating vehicles. It’s that your savings actually lose value unless the interest rate you receive moves in line with or exceeds the rate of inflation.

Jar filled with coins

Things threaten to get particularly perilous for cash savers from 2021 onwards too. Inflation in the UK (using the Consumer Price Index mode) is predicted to soar above even the best-paying Cash ISA next year. Statista reckons it will rise to 1.2% in 2021. And they predict it will grow every year through to 2025 when it will reach 5%.

It’s unlikely that savings rates will rise at the same rate through this period, however. The Bank of England will need to keep the benchmark rate at or around record lows to support the economic recovery.

Getting rich with UK shares

Charles Stanley suggests that 40% of people who don’t invest in shares are put off by fears over risk. I think such concerns are misplaced though. As I’ve explained, inflation can pose huge real-world risk to those who use cash savings accounts. On top of this, history shows that long-term UK share investors tend to enjoy an average annual return of at least 8%.

Besides, there’s a wealth of information from experts like The Motley Fool to help you avoid common traps and supercharge your eventual returns. I’ve continued to buy UK shares in my Stocks and Shares ISA to build a big retirement fund. And I plan to keep doing so in 2021.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

US Stock

Here are the best-performing S&P 500 stocks after the US election result

Jon Smith notes some of the largest gainers from the S&P 500 yesterday and explains how the election result has…

Read more »

Growth Shares

2 UK stocks knocking on the door of promotion to the FTSE 100

Jon Smith points out a couple of UK stocks that he feels could be ready for the big league based…

Read more »

Investing Articles

Rolls-Royce shares just fell 7%. Is it time to buy?

This investor in Rolls-Royce shares takes a look at the FTSE 100 engine maker's trading update to see what caused…

Read more »

Young Black woman looking concerned while in front of her laptop
Investing Articles

What’s going on with the Auto Trader share price?

Paul Summers takes a closer look at why the Auto Trader share price has tumbled despite the company posting higher…

Read more »

Investing Articles

Legal & General shares look set to give me a mind-blowing 10.22% yield in 2026!

Harvey Jones is getting a brilliant second income from his Legal & General shares and expects even more to come.…

Read more »

Investing Articles

I’d consider this beaten-down FTSE 100 dividend stock to target a second income of £19,000

Our writer sees an opportunity to earn a substantial second income by investing in this UK insurance giant. Here’s his…

Read more »

Investing Articles

How cheap is the 72p Vodafone share price?

The Vodafone share price looks very cheap having fallen to a 72p price tag. But is it really the bargain…

Read more »

Aerial shot showing an aircraft shadow flying over an idyllic beach
Investing Articles

Up 43% in a year and the IAG share price could keep on rising!

One of the FTSE 100’s highest-flying stocks still looks cheap on an earnings basis. Is this a brilliant buy for…

Read more »