Pleasingly for Britain’s savers, the rates on offer from UK bank and building society accounts looks set to rise again. A blend of intense market competition and expectations of Bank of England rate rises means stashing cash in a conventional savings account looks set to become more lucrative during 2022, perhaps even beforehand.
As a Cash ISA owner, I’ve been waiting a long time to get a decent return on my money. The interest rate I currently receive on my instant-access product is a smidgen above 0.5%. The returns on offer aren’t going to be enough to help me retire in comfort, or splash out on something nice to treat me and my family.
Savings rates to remain low
That said, the prospect of improving savings products isn’t keeping me up with excitement. This is because I invest the lion’s share of my carefully-saved cash in my Stocks and Shares ISA instead. And I plan to continue doing this even if rates on savings accounts do indeed rise.
In recent weeks, Lloyds Bank predicted that the Bank of England interest rate will rise each year through to 2025. However, the FTSE 100 bank still expects the benchmark rate to remain below 1% through the period and average 0.5% through the period. A broad swathe of economists and financial institutions are also expecting Threadneedle Street to keep rates ultra low over the next few years at least.
I’m expecting interest rates to remain locked not too far from record troughs of 0.1% to help the economy recover from the twin blows of Brexit and Covid-19. By extension, I’m not expecting likely improvements in savings rates to prove life-changers for most people. I don’t believe they will be for me.
Why I’m buying UK shares today
This is why I will continue to invest in a Stocks and Shares ISA. Long-term stock investing tends to provide an average annual return of 8%, studies show. This is a long, long way above what savings rates on easy-access Cash ISAs, for example, are likely to rise to. Indeed, I’m not expecting these to break above 1.5% any time soon.
Making a lot of money with UK shares can be hard work and also often involves some good fortune. But a lot of Britons have still made great returns with products like Stocks and Shares ISAs. Many have even become millionaires. Based on that 8% proven rate of return, someone who can afford to invest £600 a month can realistically expect to break through the £1m barrier after 32 years. They’d have made almost £771k from a total investment of £230,400.
That’s much better than the money I can expect to make from something like a Cash ISA. Using a 1.5% savings rate for illustrative purposes, that £230,400 I’d have scrimped and saved for would make me under £295,000 over the same period.
Even if I don’t make the millionaire’s club, I hope I’ll still make a great return on my cash with UK shares over the long term. That’s not guaranteed, of course. But with the right research I can significantly boost my chances of achieving major gains.