The psychological importance of safety

At its core, saving money is about security. For many people, the idea of losing their hard-earned capital in the volatility of the stock market feels deeply risky. Unlike investing, saving cash offers a guarantee — that your initial deposit will remain intact, and that you will earn a known (albeit relatively low) rate of interest.

This certainty appeals particularly pensioners, families with dependents, and individuals with limited disposable income who cannot afford to risk any losses.

It’s not particularly hard to see why this remains the status quo. The 2008 Global Financial Crisis left deep scars across the UK, with many investors experiencing sharp falls in their investment portfolios.

Those hit without any financial buffer were, in many cases, forced to sell at significant losses to keep the wolf from the door.

Over the next decade or so, would-be investors instead retreated to the perceived safe haven of savings accounts and cash ISAs, even if that safety comes at the cost of growth.

The pandemic mini-crash and subsequent lockdowns further heightened market uncertainty, increasing the UK’s national instinct to hoard cash. With ongoing inflationary pressures, many savers now feel caught between protecting their capital and facing the eroding effects of inflation.

Nevertheless, their first instinct seemingly remains to avoid risk.

How to invest in shares with us

For those looking invest in UK shares with us, here's a straightforward approach:

1. Learn more about shares
2. Download the IG Invest app or open a share dealing account online
3. Search for your desired share on our app or web platform
4. Choose how many shares you’d like to buy
5. Place your deal and monitor your investment

Investors look to grow their capital through share price returns and dividends - if paid.

But the value of investments can fall as well as rise, past performance is no indicator of future returns, and you could get back less than your original investment.

The Cash ISA Myth

Since their introduction in 1999, ISAs (Individual Savings Accounts) have become a cornerstone of British savings culture. Offering tax-free interest, cash ISAs long been viewed as a secure and accessible option for everyday savers.

However, IG analysis shows that UK cash savers have experienced only one seventh of the real returns that UK investors have earned since cash ISAs were first established.

Paradoxically, overall cash ISA subscriptions increased by 722,000 accounts in 2022-23, with total holdings rising by £4.7 billion, while stocks and shares ISAs saw a decline of 126,000 accounts and £6.2 billion withdrawn. Clearly, the myth of cash ISA safety continues to dominate despite evidence of its comparatively poor long-term performance.

The persistence of this pattern suggests that many savers prefer what feels familiar and secure, even if it means missing out on significant wealth accumulation over time. This has serious consequences, both for individual financial well-being and the wider economy, which relies on liquid capital markets to finance innovation and growth.

Complex behavioural incentives

The government’s ISA scheme currently costs approximately £9.4 billion a year in ‘lost’ tax revenue. Yet the economic benefits of this tax relief are questionable, particularly regarding cash ISAs. Most cash ISA holders do not actually benefit from tax relief because the Personal Savings Allowance already exempts basic rate taxpayers from paying tax on up to £1,000 of interest annually.

With typical cash ISA balances averaging around £13,000 and interest rates near 4%, most savers would not pay tax on interest even without an ISA. Higher-rate taxpayers need to hold over £12,500 in savings to benefit from tax relief on interest. However, many cash ISAs pay less than the threshold required to make this worthwhile.

This misalignment means the current ISA framework inadvertently subsidises low growth saving rather than encouraging investment in shares that would stimulate UK economic growth.

Redirecting even a fraction of funds from cash ISAs into stocks and shares ISAs could yield considerable benefits: if just 20% of the funds placed into cash ISAs in 2022-23 had moved to stocks and shares ISAs (and assuming half were invested in UK equities) it could have generated a £4 billion annual capital injection into UK-listed companies and saved the Treasury £2 billion annually in lost revenue.

Risk Aversion and Misinformation

Many argue that the largest barrier to higher investing rates in the UK is the lack of financial literacy among the general public. Many people lack the confidence to navigate the financial markets, understanding investment products or assessing risk-return trade-offs. This knowledge gap fosters a natural preference for outcomes which are predictable and completely transparent.

Generations of savers have been taught to prioritise prudence and security over reasonable, calculated risk-taking, and the national narrative often treats investing as something only for the wealthy or financially sophisticated. Media coverage tends to highlight market downturns and financial scandals, and neglects to cover the longer-term gains.

Furthermore, regulatory frameworks intended to protect consumers can inadvertently contribute to this hesitancy.

For example, financial services firms are required to signpost risks and dangers everywhere, which makes it hard to effectively relay the potential benefits to investing over the long term — and perhaps critically, the risks of poor returns in cash compared to stocks are not required to be highlighted.

Interest rates and market volatility

Over the past decade, ultra-low interest rates made saving cash unattractive but did little to spur a surge in stock market investing among ordinary savers. With rates only recently climbing back to around 4%, some cash savers still prefer to lock in modest, guaranteed returns rather than face the volatility of stocks.

Recent market events such as Brexit, Silicon Valley Bank, Russia’s invasion of Ukraine and inflationary spikes, have all added layers of risk that can discourage investment. For those without a financial safety net, the prospect of short-term losses can be scary — even if the long-term outlook for diversified investments is positive.

Historically, stocks and shares tend to outperform inflation and cash returns over extended periods, delivering meaningful real growth. However, many UK savers remain sceptical, preferring the guarantee of cash despite its purchasing power erosion.

Policy, education and investor empowerment

To shift UK savers toward more investment without abandoning the need for security, a multi-pronged approach is essential.

Policy reforms — we are campaigning to end to cash ISA accounts from 2026 — can nudge savers toward more productive wealth-building. However, reforms must be carefully designed to avoid penalising those who legitimately need cash savings, such as pensioners or those with short-term financial needs (like saving for a house deposit).

Financial education may be the key. Schools, employers and financial services firms should work together to provide clear, accessible guidance on investing, risk management and the power of compounding returns. Improving public understanding may help to reduce fear and promote confidence.

Innovative investment products tailored for risk-averse investors moving out of cash, such as low-cost index funds, diversified portfolios or hybrid savings-investment accounts, could offer a middle ground between safety and growth.

Cultural change takes time but is achievable. By fostering a national narrative that values informed risk-taking alongside prudence, the UK may be able to encourage more people to participate in the country’s capital markets and share in the benefits of economic growth.

Saving vs investing preferences summed up

• Many savers prioritise the certainty of capital protection and modest interest over the risk of market volatility, especially after traumatic financial events like the 2008 market crash
• A national tendency toward risk aversion, reinforced by media focus on market losses and generational attitudes toward prudence, discourages participation in equity markets
• Widespread misunderstanding of tax advantages and investment risks contributes to the enduring appeal of cash ISAs, even though they significantly underperform stocks over the long term
• Encouraging investment through policy reform, better financial education and safer investment options for cautious savers could help shift public behaviour toward long-term wealth creation