More than 33,000 individuals in the UK held at least £1 million in savings accounts last year, according to recent data. This figure, based on individuals declaring over £50,000 annually in interest to HM Revenue & Customs, suggests a significant portion of the population is prioritizing safety over potential long-term investment growth.
Labour, under the policy direction of former chancellor Rachel Reeves, aims to encourage savers to invest more in British stocks and shares rather than accumulating large sums in cash. The party believes this shift would strengthen businesses and boost the national economy. However, analysis of HMRC and MSCI World Index data indicates that persuading Britons to move their money from savings accounts could be a considerable challenge.
Cash vs. Equities
Investing in stocks and shares, or equities, can offer higher long-term returns compared to interest earned on cash savings. However, investment returns are variable and carry the risk of loss, unlike the capital protection offered by most savings accounts. Financial advisors generally recommend maintaining an emergency fund covering at least three months of living expenses in cash before considering investments, and advise against investing money needed within the next five years.
Data indicates that the average annual return on equity investments over the ten years leading up to May 2026 was approximately 12.9 percent. This contrasts sharply with the average annual return on cash ISAs, which stood at 2.18 percent for the same period. While recent years have seen improved cash ISA rates, driven by an increase in the Bank of England's base rate, topping out at over 4.5 percent, the persistent risk of inflation eroding the purchasing power of cash savings remains.
Inflation, currently at 2.6 percent, means that savings earning less than this rate effectively lose value. To address this, the government is reducing the annual limit for tax-free cash ISAs from £20,000 to £12,000 starting in April 2027. The allowance for individuals aged 65 and over will remain at £20,000.
Mark Incledon, chief executive of financial planner Bowmore, commented that the rise in seven-figure cash holdings suggests many investors are prioritizing security, but this comes with a "hidden cost – negative real returns after inflation." He noted that some investors are deterred by short-term market volatility.
Taxation on Savings and Investments
Tax implications differ between cash savings and investments. Most individuals can earn a certain amount of interest tax-free: basic rate taxpayers are allowed up to £1,000 in annual interest from standard savings accounts, while higher rate taxpayers can earn up to £500. Additional rate taxpayers are taxed on any interest earned. However, all taxpayers benefit from an annual ISA allowance of £20,000, on which generated interest is tax-free. Premium Bonds, a government-backed savings product, offer tax-free prize winnings instead of interest.
Investors in equities are subject to capital gains tax (CGT) on profits when assets are sold. CGT rates for stocks and shares currently stand at 18 percent for basic rate taxpayers and 24 percent for higher rate taxpayers, increased from 10 percent and 20 percent respectively in the Autumn 2024 Budget. These new rates align with those for property gains.
Dividend income from shares is also taxable, with a reduced tax-free allowance of £500, down from £1,000 in the previous tax year. Dividend tax rates, applied above this allowance and an individual's personal income tax allowance, increased on April 6, 2026, to 10.75 percent for basic rate taxpayers and 35.75 percent for higher rate taxpayers, remaining at 39.35 percent for additional rate taxpayers.