I’m sure that many stock investors who’ve been left exhausted by the severe market volatility of recent weeks may well be looking at holders of boring old cash-based savings accounts with some envy.
There’s a suggestion, in fact, that many fearful investors have been pulling their money out of so-called riskier assets like shares and parking their capital in such benign accounts. Indeed, it’s quite possible that the surge of people snapping up Goldman Sachs’s new Marcus savings account in the first few weeks of its existence was driven, in part, by current nervousness among Britain’s savers.
Don’t believe the hype
But is this popular new product actually much cop? And is it, say, a better investment destination than putting your money to work on the FTSE 100?
Well, a quick scan of Moneysupermarket.com shows that Marcus, which allows deposits ranging from £1 up to £250,000, offers the highest interest rate of all non-fixed-term cash accounts, at 1.5% AER. In launching the product, Marcus managing director Des McDaid claimed that the new account is “putting the interest back into savings and make saving worthwhile again.”
It could be argued that the buzz around the new product is a victory of hype over substance, though. The next best-paying easy access cash account, according to the aforementioned price comparison website, is offered by the Post Office, and has a interest rate just a shade lower at 1.45% AER. And this product allows savers to deposit up to £2m.
Now I’m not going to rain down on cash accounts — they have a time and a place and serve a very important role, in other words, the holding of emergency cash and temporary funds earmarked for another purpose.
However, if you’re someone who takes out an account like the Marcus in order to store all, or a considerable amount, of your excess capital, then you’re making a very big mistake, in my opinion. As I’ve said, the Marcus is currently the best-paying instant access savings account on the market right now. But the rate it offers still falls well short of the UK inflation rate right now (which stood at a stable 2.4% in October, in terms of the official CPI measure).
Make better returns
So rather than protecting your savings, the new product from Goldman Sachs’s new digital bank actually means that the longer you leave your money locked up, the less value it actually has.
Now let’s compare that to some of the returns possibly on offer from the FTSE 100. It’s been proven time and again that, over a long-time horizon, through a combination of share price appreciation and the payment of dividends, the investment returns generated by Britain’s premier share index far outweigh those from those inflation-battered cash accounts.
And while the macroeconomic and geopolitical backdrop is a little less certain than it was even a year ago, the Footsie is positively teeming with great income shares that can really turbocharge the returns you can get from your capital. We here at The Motley Fool spend plenty of time singling out some of these great big-yielding stocks. And the October share market sell-off is leaving a lot of these companies looking pretty undervalued. Embrace the recent volatility, I say, and take the opportunity to load up on some dirt-cheap dividend stars.