Majority of UK savers risk losing money in real terms, warns ArchOver

According to a study by peer-to-peer (P2P) business lending platform ArchOver, UK savers are seeing their hard-earned cash depreciate at the hands of high inflation and low interest, despite 71% claiming that interest and ROI are top-of-mind.

The Next Gen: Investors and Savers report explores consumer attitudes towards risk and investment. The survey of 2,000 UK adults revealed that two thirds (67%) would call themselves ‘savers’ rather than ‘investors’, preferring a cautious approach to money and putting aside £191 a month on average.

Most are saving for a specific reason, like the reassurance of having a ‘rainy day fund’ (66%), financing a new car or a holiday (29%) or paying for retirement (27%). But in a high-inflation, low-interest economy, those goals will stay out of reach if savers leave their cash languishing in savings. They must find other avenues to make their cash work harder at the same time.

“People like to go with the status quo, and they’re attracted by the protection you get with traditional savings accounts,” said Angus Dent, CEO of ArchOver. “However, leaving your money lying around in a savings account for years on end is not going to help people reach their goals in the long-term. In reality, savers need to diversify their portfolios and look for alternative ways of making their money grow that balance security and opportunity.”

More than half (57%) of savers still associate savings with “security” and the majority (83%) are relying on traditional savings accounts to help them build their nest eggs, followed by ISAs (43%) and pension funds (33%). They show a preference for services where there is a level of financial protection, even if it comes with a minimal level of interest. As a result, their return over a period of years could end up being negative in real terms as inflation continues to outstrip interest.

A cautious mindset is also dominating people’s financial decisions. If they inherited a large sum of money, the majority (46%) would deposit it into a savings account and three in 10 (30%) would put it in an ISA. Less than one in 10 (9%) would consider using a large sum of money to invest in stocks and shares. Meanwhile, only 4% are currently using peer-to-peer (P2P) lending or crowdfunding, despite typical annual returns of 7-8%.

“Savers like knowing that the service they are saving into is fully regulated. Many take comfort in knowing their money is protected by official bodies and that they’ll be contacted if there’s a significant risk to their cash,” added Dent. “But that cautiousness is at odds with what savers claim to be thinking about, which is seeing their money grow. If savers are to achieve their goals, there needs to be more education available on the options that could help them achieve higher returns with a relatively low amount of risk. That means helping them better understand how to identify which services are being transparent about potential risk factors, prioritise security and allow savers to control how their money is being used.”