Beware of cashing in your chips

Image of fish and chips


Julie Hutchison

15th July 2014 at 11:11am

What can the price of fish tell me about my savings? Quite a lot actually, especially when it comes to inflation and price increases over several decades.

Every now and then, I part with £6.90 for a fish supper at my local chip shop. But if I had been buying this in 1960, it would have cost about 6p!

The fact that prices tend to go up over the years has a really big impact on our money. And it has now affected my ISA decision.

Is it rash to put it all in cash?

In 2012/13, 80% of money saved in ISAs went into Cash ISAs. And for many years, I chose to put money in a Cash ISA too. But nowadays I prefer to save in a Stocks and Shares ISA instead.

As I’m saving for the long term, this means I’m hoping not to have to touch some of this money for quite a long time – maybe even decades.  And I don’t think cash is the right place for my long term savings.

Choosing cash could result in inflation eating away my money’s real value over that kind of timescale.  As this inflation calculator shows, something costing £650 in 1998 could have cost £1,000 in 2012.

Interest rates have been at a historic low of 0.5% for over 5 years now, and inflation is around 2%. So if I continued to save in cash, I’d be worried that my money wasn’t going to grow enough to beat future price increases caused by inflation.

What’s your tipping point?

Of course, saving in a Cash ISA can be useful to build-up an emergency fund.  This could cover several months of rent/mortgage payments and utility bills etc.  But what’s the tipping point where people feel happier to move into a Stocks and Shares ISA?

Recent figures suggest that the average Brit likes to have around  £7,499 in cash savings before they feel comfortable investing in a Stocks and Shares ISA.*

Your own preferred ‘cushion’ of emergency savings might be higher than this – mine is, since I’ve had past experience of roof repairs Recent figures suggest that the average Brit likes to have around  £7,499 in cash savings before they feel comfortable investing in a Stocks and Shares ISA.and weather-related damage to pay for.  Everyone’s overheads will be different, so it’s a case of working out what you really need to set aside based on your personal situation.  It will also depend on how many people need to be supported by your emergency fund – is it for you?  Or you and your family? This headcount affects how small, medium or large your emergency fund needs to be!

Taking the first step towards investing

Assuming you have sorted out your emergency fund, what’s next to get started with investing?  If you’ve not dipped your toe in the water with investments before, it can feel daunting – it’s natural to fear the unknown.  But there are practical things you can do to get information and limit the risks you take.  You don’t have to be an investment expert to get started with a Stocks and Shares ISA.  The first step is to understand how much risk you’re happy taking – this questionnaire can help you get started.

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*(Research for Standard Life by YouGov Plc. Total sample size for the 2014 survey was 2591 adults and 2009 adults in 2013. Fieldwork was undertaken between 5th – 7th March 2014 and 25th – 28th January 2013. The surveys were carried out online. The figures have been weighted and are representative of all GB adults (aged 18+).

The information in this blog and any comments should not be regarded as financial advice. A Stocks and Shares ISA is an investment. Its value can go up or down and may be worth less than you paid in. Laws and tax rules can change in the future.