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Low interest rates prompting new investors

Written by: Emma Lunn
More than half (54%) of adults have put money into investments because of the low interest rates available on cash savings, according to Aegon.

A tenth (10%) of those questioned by the life insurance and pensions firm said they had invested ‘all’ their extra cash, while a further 44% had invested ‘some’ of their cash. The proportion of people who invested all their spare cash was highest among the under-35 age group

But while a majority have been prompted to invest, 45% said they have kept their money in cash savings despite the low interest rates on offer.

The Financial Conduct Authority’s (FCA) latest paper on the consumer investment market suggests there are 8.6 million UK adults with investable assets of £10,000 or more in cash. The FCA believes many could benefit from investing and has set itself a target of reducing by 20% the number of those holding more than £10,000 in cash who are able to take more investment risk.

Aegon found that interest rates on savings falling below 2% was the tipping point for most people putting money in investments. A third (35%) said interest rates falling to between 1 and 2% was the tipping point, and a further 39% said it was when interest rates fell below 1%.

The research also looked at people’s attitude towards investments promising high returns. It found that, worryingly, it’s only when an investment promises a return of 10% or more a year that the majority of people become sceptical of scams.

When faced with a promise of high returns, 59% said they would research the investment further before investing. A third (35%) said they would avoid these types of investments altogether in case of scams.

Steven Cameron, pensions director at Aegon, said: “While it has been mooted that the Bank of England could look to increase the base rate to dampen the effects of rising inflation, interest rates on cash savings remain at historic lows.

“This has promoted many people to review what they hold in cash and turn to investment opportunities with the potential of higher returns. Over time, money left in cash accounts is at risk because of the eroding effect of inflation that reduces purchasing power. Money in investments can benefit from growth which can outstrip the rising prices of goods and services, although this is by no means guaranteed.

“Despite the rising popularity of investing, there is a proportion of adults who, despite interest rates just scraping above zero, are saving large amounts of excess money in cash. While this might be used to build up a ‘rainy day fund’ or pay off debts, people with large amounts of savings which don’t need to be accessed in the short-term could have a more realistic chance of earning a real rate of return through investments.”

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