Investors flee bonds and stocks to cash as interest rates stay high
UK retail investors are increasing flocking to cash over other investments as interest rates remain at sky-high levels.
Interest rates are at their highest level in over 15 years, at 5.25 per cent, leaving many investors to see a guaranteed return on cash as more appealing than stocks or bonds.
UK households now hold 31 per cent of their financial assets in cash, bank deposits or money market instruments, according to data from the Office for National Statistics. This is up from just 24 per cent in 2020, and 28 per cent in 2022.
A separate survey by Investec Bank found that over the last year, 29 per cent of UK retail investors sold some of their stock market investments to increase their cash.
This compared to only eight per cent of investors who increased their portfolio’s weighting towards stock market investments over cash.
In the past year, 17 per cent of UK retail investors have reduced the percentage of their investments by more than 10 per cent to put more money into savings, with six per cent selling over £10,000 in stock to bump up their cash levels.
41 per cent said they had sold investments because interest rates on their savings account had increased, while 36 per cent said it was because they were worried about market volatility.
This trend is likely to continue, as Investec’s survey found 22 per cent expected to continue switching from stocks into cash over the next year, compared to 11 per cent who said they will do the opposite.
Of those who said they’d be reducing their stock market holdings in favour of cash, 76 per cent said they would be reducing it by over 10 per cent.
David Hunt, head of retail savings at Investec, said: “Soaring rates on savings accounts, combined with a difficult year for stock markets, has meant that UK investors have been increasing their cash holdings while reducing their exposure to investments.
“Our research suggests that this trend is set to continue. While it is crucial to have a savings buffer, investors should seek professional advice when making decisions about their investments and the balance they have with cash savings.”