Currently, inflation in the UK stands at 9% and is expected to rise tomorrow morning (June 22). Experts estimate the inflation rate will hit 11% in the autumn at a time when energy bills are expected 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 in while they weather the financial storm.
While many Britons are choosing cash ISAs as their savings option, new research from Bowmore Financial Planning warns the account is eroding people’s money due to high inflation.
Recent data from HMRC revealed that 82% of millennials, those aged 26-41, who have ISAs hold cash ISAs.
That’s the equivalent of 2.2 million savers, while only 402,000 invest their money in a stock and equity ISA.
Bowmore Financial Planning warns young people that if they want to save money for the long term, they should invest in the stock market and not use traditional savings methods.
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Gill Millen, managing director of Bowmore Financial Planning, stressed why such a financial decision is “very unwise” to make.
Mr Millen explained: “For millennials who are investing for their long-term future, investing so much in cash is very unwise. This guarantees that they will lose money.
“Despite the recent volatility in global stock markets, in order to build long-term wealth, they should consider investing in stocks, which have historically beaten cash on the longer-term horizons that millennials should be saving for. “
In previous years, money that was held in savings accounts did not see much gains due to historically low interest rates.
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Due to rising inflation, many Britons are seeing their savings lose value in ‘real’ terms as they buy less with their money.
The financial expert warned that the current economic climate in the UK is proof that savers need to move away from short-term cash ISAs.
Specifically, Millen cited skyrocketing inflation and low interest rates as reasons why savers are losing money.
He added: “With inflation at its highest level in 40 years, it is more important than ever that savers consider alternatives to cash ISAs.
“When inflation is higher than the return you can get by 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 means it’s losing value at the fastest rate in decades.
Further research by Bowmore Financial Planning found that 51% of Britons aged 55-64 use ISAs to invest in stocks.
This is despite the fact that savings theories suggest that this demographic should have a lower appetite for risk than millennials.
Some 588,000 people in this age group hold stock and equity ISAs, while 1.1 million have cash ISAs.
“Interestingly, millennial parents are more at risk than their children,” Millen said.
“Millennials should learn from his book and understand the value of time.
“Despite the break in the bull run, millennials shouldn’t worry about short-term market declines if they’re looking to build long-term wealth.”