Savings accounts aren’t always the low risk they seem, says a new Which? book.
Jonquil Lowe, the author of Save and Invest, says that savings accounts could even be seen as a risky choice for long-term savers.
The credit crunch, a volatile stock market and falling property prices have left many people looking for ‘risk-free’ options for their savings – but the book warns that by doing so, they may lose out by thousands of pounds in the longer term.
Although there’s little or no risk you’d lose your money in a savings account, it won’t grow by much more than inflation, and may even grow by less, for higher-rate taxpayers.
Returns from savings accounts are generally too low to achieve major, long-term goals such as saving for retirement or paying off a mortgage.
The book’s advice to those planning to save longer than 10 years is to include ‘higher risk’ options, such as shares, and spread their savings across several assets to manage risk. Although there’s no guarantee savers will get back their initial capital, by taking a more balanced approach and doing their homework, there’s potential for a higher return.
‘No risk-free saving’
Jonquil Lowe said: ‘There is no such thing as risk-free saving. Even sticking cash under the mattress is a fairly risky strategy, as your capital will be seriously eroded by inflation over time.
‘For short-term savers, a cash ISA or other high-interest savings account is a good option. But for those savers who are looking at a longer period of time and are willing to be a bit more adventurous, other options could give a greater return.
‘The key to all successful long-term saving or investment is to make sure you’ve done your homework, understand the options and, if you’re uncertain, take sound financial advice.’