Currently, UK inflation stands at nine percent and is expected to be raised higher tomorrow morning (June 22). Experts believe the inflation rate is likely to reach 11 percent in the autumn at a time when energy bills are forecast to reach £2,800. In the wake of this cost of living crisis, many people are looking for the best savings accounts to put their money into while they weather the financial storm.
While many Britons choose cash ISAs as a savings option, new research by Bowmore Financial Planning is warning that the account is eroding peoples’ money due to the high inflation rate.
Recent data from HMRC revealed that 82 percent of millennials, those aged between 26 and 41, who have ISAs hold cash ISAs.
This is the equivalent of 2.2 million savers, while just 402,000 invest their money into a stocks and shares ISA.
Bowmore Financial Planning is warning young people that, if they want to save money long-term, they should be investing in the stock market and not be using traditional savings methods.
Gill Millen, the managing director at Bowmore Financial Planning, emphasised why such a financial decision is a “very unwise” one to make.
Mr Millen explained: “For millennials investing for their long-term future, putting so much in cash is very unwise. It guarantees they will lose money.
“Despite the recent volatility in world stock markets, in order to build wealth in the long run they should consider investing in shares, which have always beaten cash over the longer time horizons millennials should be saving for.”
In previous years, money which has been held in savings accounts has not seen many gains due to historically low interest rates.
As a result of inflation now being on the rise, many Britons are finding their savings now losing value in ‘real’ terms as they are finding themselves buying less with their cash.
The financial expert warned that the UK’s current economic climate is evidence that savers must move away from cash ISAs in the short term.
Specifically, Mr Millen cited the skyrocketing rate of inflation and low interest rates as to why savers are losing money.
He added: “With inflation at a 40-year high, it is more important than ever that savers consider alternatives to cash ISAs.
“When inflation is higher than the return you can achieve through holding cash, you are guaranteed to lose money.
“In today’s environment you are guaranteed to lose a lot. Keeping your money in a cash ISA will mean it is losing value at the fastest rate in decades.”
Further research carried out by Bowmore Financial Planning highlighted that 51 percent of Britons aged between 55 and 64 use ISAs for investing in shares.
This is despite the fact that savings theories suggest this demographic should have a lower risk appetite than millennials.
Some 588,000 of people in this age group hold stocks and shares ISAs, while 1.1 million who have cash ISAs.
“It’s interesting that millennials’ parents are more risk positive than their children,” Mr Millen said.
“Millennials should take a leaf from their book and understand the value of time.
“Despite the breaking of the bull run, millennials shouldn’t be concerned about short-term falls in markets if they are looking to build wealth in the long-term.”