Banks to push cash savers towards investing
Rachel Reeves's Leeds Reforms, which she presented to finance bosses today, will mean that banks will be allowed to send investment opportunities to anyone with cash sitting in a low-interest account.
There are millions such accounts paying paltry interest and the government said that moving £2,000 from one into the stock market could make you more than £9,000 better off in 20 years' time.
High street banks pay between 1.05 and 1.61 per cent on their easy access savings accounts. Over the past year the MSCI World index of global stocks has returned about 13 per cent.
The move is part of a joint review by the Treasury and the Financial Conduct Authority, the City watchdog. They have been looking into 'targeted support' — a new way to help those who cannot afford or do not want to pay for financial advice, but may need support to make big financial decisions.
There are 7 million adults who have £10,000 or more held solely in cash and who have not had financial advice in the past year, according to the FCA. Some 24 per cent said they did not invest because they didn't know enough about investments, 12 per cent said they were overwhelmed by the options available and 8 per cent said they would like to invest but needed help.
Targeted support would allow financial companies, such as high street banks, to provide suggestions to savers like these. The review will also look at whether risk warnings for investments should be down and whether financial firms could help those who are not saving enough for retirement to make better use of their pensions.
Channelling savers' cash into the UK stock market has long been in the chancellor's sights as part of the government's push for economic growth, a key pillar of the plan to balance the books.
• Rachel Reeves poised to force firms to pay more into staff pensions
In March the Office for Budget Responsibility cut its growth forecast for 2025 in half — from 2 per cent to 1 per cent. This, combined with this month's U-turn on welfare reform, has left the chancellor with a £5 billion hole in the public finances, and economists warn that this will only get bigger if growth forecasts are downgraded again.
Today Reeves also revealed an advertising campaign to explain the benefits of investing, which 15 financial firms have agreed to support. They include Barclays, NatWest, HSBC and Lloyds Group banks, plus the investment platforms AJ Bell and Hargreaves Lansdown. The Investment Association, a trade body, will run the campaign.
'The government's campaign to promote investing could be hugely powerful as a soapbox for shouting far and wide about the benefits,' said Tom Selby from AJ Bell.
'Investing is often seen as something that is only for relatively wealthy people, or something you need a great deal of financial knowledge to get involved in. In fact, it is relatively easy, and you don't need tens of thousands of pounds to get started.'
Other reforms mentioned today by the chancellor include changes to Isas. There has been much speculation over the past few months that Reeves would cap the amount you can save each year into a cash Isa at as little as £4,000, but last week it appeared that she had agreed to hold off on any changes for now.
• Is it too late to save £20,000 into a cash Isa?
Today the government said it would 'continue to consider reforms to Isas and savings to achieve the right balance between cash savings and investment'. It also said that from next year, investors will be allowed to hold long-term asset funds — a type of investment fund created in 2021 for those who wish to invest in long-term, illiquid assets — in their stocks and shares Isas.
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