Eight out of ten women risk being overly cautious as they opt to put their savings only into cash when choosing an Individual Savings Account (ISA) product.
HMRC data shows that 82% of women, some 5.9 million, chose to put their ISA savings in cash alone when subscribing to an ISA in 2012/13 (the latest data available). Data indicates that men are 43% more likely to use a Stocks and Shares ISA compared to their female counterparts.
ISAs are a fantastic way to save efficiently as they are exempt from Capital Gains Tax. The overall ISA take-up is higher among women than men as they opt to take advantage of the tax-free savings accounts.
Many view cash to be a ‘safe-haven’ when compared to investments but are users taking inflation into consideration? Inflation could erode the real value of their savings. While saving in cash is may be perceived as the more secure option, it is not always an appropriate strategy, particularly for those looking for long-term savings growth. Given that women are on average likely to live longer than men, this should be a key consideration.
Bank of England figures show that the average interest rate offered by UK banks on cash ISA deposits is currently just 0.99%.* With interest rates on cash ISAs so low, savers with cash products risk seeing real-term value reduce rather than rise over time. There’s a strong argument to say that women should look at a less cautious approach than men to maximise their savings since they are more likely to be relying on their savings to last longer.
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That said, it’s vital that stocks and shares products are structured so that they don’t eat into performance. While inflation can stamp out growth in cash ISAs, high fees can stifle returns on stocks and shares products. Savers may be concerned that if the ISA’s investment strategy yields lacklustre returns, the relatively high costs of stocks and shares accounts could disproportionately swallow up growth.
By maximising value from structurally low cost investments, such as Exchange-Traded Funds (ETFs), savers can improve the potential return/cost ratio.
All savers need to consider their financial goals when exploring account options. It is no longer enough to save money; individuals also need to consider interest rates, the economic climate and the balance between risk and returns. When interest rates are low cash isn’t the safe option; investments can help individuals protect the real value of their savings.
*Monthly interest rate as at 30 November 2015