Investors Build Up to Four Times More Wealth Than Cash Savers, Even on Modest Incomes

Cash remains the clear favourite for British savers, with many still choosing the perceived safety of bank and building society accounts over the stock market.

Yet new research suggests that people who do invest are often significantly wealthier than those who do not, even when their annual income is relatively modest.

Across the UK, the average adult with savings or investments keeps almost two thirds of that money in cash rather than in stocks and shares.

Figures from wealth management firm St. James’s Place, however, point to a notable divide between investors and non-investors when it comes to overall wealth.

The gap is especially striking among households earning up to £20,000 a year, where investors have more than four times the wealth of those who do not invest, according to the firm’s research.

For the survey, wealth was defined as savings, investments and physical possessions, while pensions were excluded from the calculation.

In this income group, non-investing savers hold an average of £24,559 in wealth, compared with £103,025 among those who invest.

The figures should be treated with some context, as a significant share of that wealth may be tied up in physical possessions rather than readily accessible savings or investments.

They could also be pensioners, who have a small income but live off a large pot of savings and investments built up while still in work. 

They may also be self-employed business owners who pay themselves a small salary and take the rest in dividends, while also investing.  

But even among higher earners, who are more likely to be investing from their salary, wealth is much greater compared to those who only save in cash. 

Those earning between £20,001 and £40,000 per year have £133,168 of wealth if they are investors, more than three times the £40,991 held by those who save only in cash. 

Investors who earn more than £80,000 hold wealth, on average, of £528,118 while non investors hold £174,692 – a difference of £353,426, according to St James’s Place. 

More than two thirds of those investing for more than five years describe themselves as financially comfortable. This compares with just 26 per cent of non-investors. 

Higher levels of investing may partly reflect the fact that wealthier people are more likely to invest – possibly because they have more financial breathing room if the investment loses value.  

While investing is more likely to produce better returns than saving over a medium to long term horizon, those returns are never guaranteed and the value of investments can fall. It is recommended that you only invest money you don’t need access to in the next five years. 

Wealthy households still hold £200k cash

Even wealthier households keep almost £200,000 in cash on average, according to the research. 

Households with investable assets worth between £200,000 and £499,000 hold 40 per cent of that wealth in cash, averaging £116,740. 

Those with between £500,000 and £999,000 keep 36 per cent in cash savings on average which amounts to £197,860. 

Cash might feel like a safe way to store wealth, but its real-terms value – the amount of goods and services it can buy – is eroded by inflation unless it is in an account earning a competitive interest rate. 

Inflation was 2.8 per cent in May this year, so it is crucial to find an account paying more than that. 

The best easy access savings accounts pay interest of up to 5 per cent. You can find them using This is Money’s best-buy savings tables. 

Despite this, the average adult keeps most of their investable wealth in cash compared with just 37 per cent invested – equivalent to £52,582 held in cash and £30,673 invested. 

The investment figure does not include pensions.  

Whether you invest or not, it is important to keep some money in an easily accessible cash savings account for a rainy day, with three to six months of living expenses often recommended as a guide.

Alexandra Loydon, group advice director at St. James’s Place, said: ‘The long-term investment advantage is clear, yet too much wealth continues to sit on the sidelines, not invested but remaining in cash.

‘After several years of economic uncertainty, it is understandable that many households prioritise cash savings because it makes them feel safe and that their assets are accessible. 

‘But there is a risk of becoming cash rich but future poor if people remain over-exposed to cash over the long term.’