Rather than invest in UK shares, according to the Financial Times, savers have decided to put £276bn into bank accounts that don’t pay any interest.
In my opinion, with inflation constantly eroding the value of money, this isn’t a sensible decision.
People probably view it as a ‘risk-free’ option, believing that a bank or building society is unlikely to go bust. And even if one did, the government’s Financial Services Compensation Scheme protects deposits up to £85,000.
I suspect these savers consider themselves to be risk-averse. But it’s undeniable that the real value of their cash is going down. Surely the point of investing is to try and grow your money?
Even if the £276bn was redeployed into interest-bearing accounts, savers would be better off.
However, with my spare cash, I prefer to buy UK shares.
Why’s that?
That’s because history shows that it’s possible to accumulate wealth by investing in the stock market.
For example, from 1 February 2020 to 31 January 2025, the FTSE All-Share index, which captures 98% of the value of UK equities, increased by 37.9%. This figure — equivalent to an average annual increase of 6% — is based on all dividends received being reinvested.
A tool on the Bank of England website shows that, over the same period, the purchasing power of the pound has been eroded by 24.6%.
However, this analysis comes with a few health warnings.
There’s no guarantee that history will be repeated. Just because the UK stock market grew in the past, it doesn’t necessarily mean it’ll grow again. As billionaire investor Warren Buffett once said: “If past history was all that is needed to play the game of money, the richest people would be librarians.”
And, as noted above, some of the growth of the FTSE All-Share index came from the reinvestment of dividends. But due to the volatility of company earnings, payouts can go down or be suspended.
Therefore, investing in stocks and shares isn’t risk-free.
The biggest and best?
My personal preference is for FTSE 100 stocks. In theory, due to their strong balance sheets and global reach, the profits of these companies should be more stable.
And most of them pay dividends.
National Grid (LSE:NG.) is a stock that a cautious saver could consider.
That’s because its share price tends to be less volatile than most. Over the past five years, its monthly beta has been 0.28. In other words, if the stock market changes in value by 1%, National Grid’s share price will – on average – rise (or fall) by 0.28%.
And it offers a healthy dividend. Over the past 12 months, it’s paid 54.96p a share. This means it presently (17 February) yields 5.7%. The average for the FTSE 100 is 3.6%.
However, the transmission and distribution of gas and electricity requires expensive infrastructure. The company surprised investors in May 2024, when it announced a £7bn rights issue.
It’s also regulated, which means it has to meet certain performance targets. Otherwise, it could face fines or other penalties.
But it doesn’t face any competition and — for over two decades — has consistently increased its dividend each year.
For those cautious savers who currently aren’t earning any interest on their cash, National Grid could be a UK share to consider.
