UK retail investors are increasingly favoring cash over other investment options as interest rates reach their highest levels in over 15 years, currently standing at 5.25 percent. This trend reflects a preference for the guaranteed returns offered by cash holdings compared to the uncertainty surrounding stocks or bonds.
According to data from the Office for National Statistics, UK households now allocate 31 percent of their financial assets to cash, bank deposits, or money market instruments. This marks an increase from 24 percent in 2020 and 28 percent in 2022.
A survey conducted by Investec Bank revealed that over the past year, 29 percent of UK retail investors have sold some of their stock market investments to boost their cash holdings. In contrast, only eight percent of investors have increased their exposure to stock market investments over cash during the same period.
Furthermore, 17 percent of UK retail investors have reduced their investment allocations by more than 10 percent in the past year to allocate more funds to savings. Six percent of investors have sold over £10,000 in stocks to increase their cash reserves.
The primary reasons cited for selling investments include the increase in interest rates on savings accounts (41 percent) and concerns about market volatility (36 percent).
Investec’s survey indicates that the shift from stocks to cash among UK retail investors is expected to persist, with 22 percent planning to continue reallocating their investments into cash over the next year. In contrast, only 11 percent intend to increase their exposure to stocks during the same period.
Among those planning to reduce their stock market holdings in favor of cash, a significant majority (76 percent) anticipate reducing their allocations by more than 10 percent.
David Hunt, head of retail savings at Investec, commented on the trend, stating, “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.”