I think many savers who stash their money in low-yielding traditional savings accounts could be setting themselves up for disappointment. Not a single Cash ISA, for example, currently provides an interest rate north of 1%. This is unlikely to make even the most enthusiastic saver the sort of cash to help them retire in comfort.
Let’s say that someone invests £400 a month for the next 30 years. And let’s use that interest rate of 1% for illustration purposes. They’d have paid in a total of £144,000 yet made interest of less than £23,900. A total of £167,900 is below the near-£600,000 that the Pension and Lifetime Savings Association thinks an individual will have needed to built up to live a comfortable retirement.
Rock-bottom rates
Current Bank of England policy suggests savers can’t expect things to get much better either. At yesterday’s latest monthly meeting, the bank elected to keep the benchmark rate locked at record lows of 0.1%. The decision was made by a unanimous 9-0 vote too, even though inflationary pressures are rising in the UK.
Commenting on yesterday’s meeting, Rachel Winter, associate investment director at Killik & Co, said: “The consensus view is currently that UK interest rates will remain at their current record lows until at least the final quarter of 2022.” While rates could rise next year, she added: “Savers should look for alternative ways to earn returns on their savings.”
I’m investing in British stocks to retire in comfort!
This is why I choose to invest my hard-earned cash in a Stocks and Shares ISA to try and retire comfortably. In recent months I’ve topped up my holdings in Coca-Cola HBC, CVS Holdings and Clipper Logistics. And I’m looking for great cheap UK shares to buy following the brief September sell-off. This could give my overall returns an extra boost.
History shows that the average UK share investor makes an average yearly return of 8% over the long term. This means that person who has that £400 a month to invest a month could realistically make a total return of £599,400 over 30 years. Compare that with the £167,900 they could have made by investing in a conventional savings account like a Cash ISA.
There are plenty of quality shares to choose from to help me retire in comfort too. I also own Unilever, a FTSE 100 company whose huge stable of beloved consumer brands allows it to deliver reliable profits growth. This is a top buy despite the threat of supply chain issues which could hit production and drive up costs.
I also own Barratt Developments and Taylor Wimpey as, even though an economic downturn could damage sales, I think homes demand will remain strong for years to come, thanks to supportive government policy and those ultra-low interest rates.
With a little research it’s possible to dig out lots more quality UK shares that could help you build a big retirement fund.