UK households miss out on £38bn of income as cash soars

The cash put away by UK households has taken the total cash pile to a record £1.5trn, according to a research from Janus Henderson Investment Trusts

Research from Janus Henderson Investment Trusts has found that savers are holding record amounts of money in cash as a result of pandemic-induced fears, which has collectively cost UK households some £38bn in missed income over the last year.

The research has found that UK households have put away £77bn in cash over the first six months of the year, taking the total cash pile to a record £1.5trn - equal to the UK's collective residential mortgage debt.

However, the group said that nearly £1.2trn of this cash was not actually needed to meet household contingencies, meaning that large amounts of cash across Britain are "sitting unproductively earning minimal interest".

The total £38bn losses of income across the UK as a result of near record-low interest rates on cash deposits amount to £1,350 per household. In total, UK households have earned just £5.7bn in interest on their cash savings, close to the record low amount of £4.6bn seen in 2017.

James de Sausmarez, director and head of investment trusts at Janus Henderson, said: UK savers are squandering the opportunity to earn tens of billions of pounds extra in income on their savings.

Interest rates are set to stay very, very low for a very long time, so there is no light at the end of the tunnel for cash, he said.

As a rule of thumb, personal finance experts recommend families should be saving at least three months of income in cash for emergencies, but this would amount to just £370bn for all UK households combined.

Meanwhile, average interest rates on bank accounts fell to just 0.39% by the end of June, which mean savers' hard-earned cash is "still going markedly unrewarded". If this money had been invested in UK equities instead, Janus Henderson calculated it would bring six times more income that it has sitting in cash.

De Sausmarez said: For every one of the last 13 years, shares have provided a better income than cash. But even years of ultra-low interest rates have not deterred savers from stowing away a record amount of it. Indeed, the amount of spare cash idling unproductively in bank accounts is now, on average, equivalent to almost a whole year of household income, or the entire UK mortgage debt.

What's more, this cash is not evenly spread around, but instead is concentrated in the hands of wealthier households. That suggests there is even more than £1trn in cash that isn't needed to meet contingencies and is therefore available to invest much more productively, he said.

Banks call this 'muppet money' because they know savers are missing out on much better opportunities elsewhere, de Sausmarez said.

He added that during turbulent market times such as this year, investment trusts represent a good option for investors, since they are able to "smooth the income they pay to shareholders", thereby protecting them from dividend cuts that have been implemented by many UK companies as a result of the crisis.

He said: There is an investment trust to suit every appetite: some more focused on income, some more focused on growth, some with more international portfolios. Even those parts of the world with the lowest equity yields are providing a superior income compared to UK savings rates.