In recent weeks, there’s been a great deal of excitement here in the UK about a new savings account, Marcus by Goldman Sachs.
As its name suggests, Marcus is a foray into the challenger bank space by investment bank Goldman Sachs. Launched in the US in 2016 and now serving over half a million customers there, Marcus launched in the UK on 27 September, and has already seen over 50,000 British customers sign up since then.
So, should you jump on the bandwagon and sign up for an account too?
Higher interest rate
Marcus advertises that it’s “putting the interest back into savings.”
Yet, to my mind, the interest rate is hardly anything to get excited about. Right now, Marcus offers a rate of just 1.5% AER, which is not only ‘variable’ (meaning it could change) but also includes a ‘bonus’ rate of 0.15% for the first 12 months.
Sure, that beats that the current average rate on easy-access savings accounts of 0.63% (according to Moneyfacts), but a return of 1.5% per year isn’t going to make you rich, is it? Invest £10,000 and you’ll receive interest of just £150 after a year. With inflation running at between 2.5% to 3% in the UK at the moment, any money earning 1.5% per year is actually losing purchasing power.
Of course, cash savings are useful when it comes to saving for short-term goals, or for having money available for emergencies. In this respect, a Marcus account could be handy, as there are no fees or charges to withdraw money. Yet as a long-term savings vehicle, a Marcus account probably won’t be very effective.
Boost your wealth
If you’re looking to actually grow your money at a decent rate, beat inflation, and build up significant wealth over the long term, it could make more sense to open a Stocks & Shares ISA instead of a Marcus savings account.
With a Stocks & Shares ISA you can still hold money in cash (you probably won’t get a rate as high as 1.5% though) but you can also invest in a vast range of funds, investment trusts, exchange-traded funds (ETFs) and individual stocks, and this could help you boost your wealth over the long run.
For example, through a Stocks & Shares ISA, you could invest in a popular fund such as the Lindsell Train Global Equity Fund, which invests in high-quality companies all across the world and has returned more than 140% over the last five years. Or you could keep things simple by buying an ETF that tracks the FTSE 100 index. Alternatively, you could build up a portfolio of dividend stocks yourself. Right now, after the recent market sell-off, there are a number of well-known companies in the FTSE 100 offering yields of 5%, 6% and 7%.
It’s also worth noting that any income or capital gains you generate within an ISA account are entirely tax-free. As such, I believe the Stocks & Shares ISA offers considerable appeal as an investment account. While the Marcus savings account could be useful for those saving for short-term goals, the ISA is a great product for those looking to build wealth over the long term.