High inflation and record-low interest rates have pushed the real returns on cash ISAs to the lowest level for more than
a decade.
With CPI inflation hitting 9.1% in the 12 months to May 2022, and the monthly interest rates available on cash ISA deposits, excluding unconditional bonuses, standing at just 0.52%, cash ISA savers face a historic real terms loss of -8.58%.
This is the highest real terms loss on cash ISA savings in over a decade, coming in more than double the previous highest loss (-2.81% in November 2017).
Mind the gap: Real cash ISA returns the lowest in a decade
Source: ONS, Bank of England, Quilter as at June 2022.
In the second quarter of 2022, the Bank of England are forecasting that inflation will potentially reach even higher later this year*.
If you are a cash ISA saver, investing could help make your cash work harder and has a better chance of delivering an
above-inflation level of return. Given stocks and shares have a better chance of keeping pace with inflation, stocks and shares ISA are good products to consider in the new tax year.
Someone who invested £10,000 in a cash ISA in January 2011 would currently have £11,286. Adjusted for inflation, this is just £8,744. In contrast, a £10,000 investment in the IA Global Equity index over the same period would be worth £26,361
or £20,429 after inflation.
– Diversify: The first rule of investing is to diversify your portfolio to reduce the risk. For example, by buying a range of shares and having a diverse asset allocation including bonds, property and alternatives.
– Understand what you are investing in: is important to know exactly what you are buying, what the return drivers are and what the risks are.
– Have a realistic plan: You need to know how much you can realistically set aside each month to invest, understand your capacity for loss, and get exposure to a suitable amount of risk given your investment objectives.
– Beware of social media money ‘mentors’: When people want to invest, they often turn to social media for tips. But anyone can set up a profile and start offering advice so be careful who you trust. If you are unsure and want an expert to guide you through, stick to regulated and trusted financial advice.
– Remind yourself of scam red flags: Investment scams facilitated online and on social media are becoming more and more prevalent. Be wary of an investment proposition that offers an unrealistic rate of return, which downplays the risks or puts you under time pressure to make a decision. If in doubt, check the FCA’s register and make sure you a dealing with a regulated financial services firm. For more information visit www.fca.org.uk/scamsmart.
Your financial adviser takes pride in offering a personal service that‘s tailored specifically to your individual circumstances. Your financial situation is unique, so we work hard to understand your goals
and aspirations, and make financial recommendations based on a comprehensive and detailed analysis of your needs.
Past performance is not a guide to future performance.
The value of investments and the income from them can go down as well as up and investors may not get back any of the amount originally invested.
Exchange rate changes may cause the value of overseas investments to rise or fall.
Investors do not pay any personal tax on income or gains, but ISAs may pay unrecoverable tax on income from stocks and shares received by the ISA managers.
Tax treatment varies according to individual circumstances and is subject to change.
Stocks and Shares ISAs invest in Corporate bonds; stocks and shares and other assets that fluctuate in value.
You should only consider these products if you are willing to take some risk with your capital. We will consider whether such products are suitable for you before recommending an investment.
*Source: https://www.bankofengland.co.uk/knowledgebank/will-inflation-in-the-uk-keep-rising