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With cash earning more than 8%, why risk money on the stock market?

04 September 2023 Duncan Lamont, CFA - Head of Strategic Research at Schroders
Duncan Lamont

Duncan Lamont

Increased savings rates mean savers globally can earn upwards of 5% on deposits. So doesn’t it make sense to cut risk and stick to the safety of cash?

Cash savers in the UK are benefiting from the highest returns in almost two decades, with some popular accounts paying over 5%. In South Africa the allure of cash is even stronger, with some accounts offering up to 8.9%, with no deposit minimum. The rise in returns globally has been rapid, with rates today in several regions many times higher than a year ago. Unsurprisingly savers are committing more to cash ISAs than at any point in the past five years*.

After a long spell in which nominal returns on cash were virtually zero, investors are now rethinking the role deposits should play in wider portfolios. Schroders’ May 2023 survey of UK financial advisers – coming as the Bank of England raised interest rates for the 12th time since the start of 2022 – found nine in ten advisers were “having conversations with clients about long-term investing versus cash deposits”.

The situation in SA is similar. “This is a genuine asset allocation issue for local managers, and a big talking point for wealth advisers and their clients,” says Philip Robotham, Head of Intermediary for Schroders in South Africa.

With the South African Reserve Bank only recently leaving its key repo rate unchanged at a 14-year high of 8.25% after a tightening cycle after 10 consecutive rate hikes, aren’t investors right to reconsider cash?
All savers’ circumstances are different, and some may have excellent reasons to be holding cash. But just because savings rates are rising does not mean cash is keeping pace with inflation.

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