Savers are being tempted with cash bonuses to invest in stocks as brokers strive to compete with banks amidst rising rates.
Hargreaves Lansdown, a broker, is now offering a cash bonus of up to £250 to customers who open investment Isas before the end of September. Savers who invest £5,000 will receive £50, those who put in £10,000 will be paid £100, and investments of more than £15,000 will receive the full bonus.
Bestinvest, another broker, has also introduced a monthly £250 raffle for accounts where customers save £50 or more per month into their stocks and shares Isas and pensions.
Shepherds Friendly offers a £50 shopping voucher on stocks and shares Isa accounts that remain open for more than 30 days after the first deposit is made. Interactive Investor also provides a £50 investment credit for those who open investment accounts or stocks and shares Isas.
These offers come as savers now have the opportunity to earn up to 6% interest on their deposits, comparable to the returns of some stock market funds, after years of low-interest deals.
Furthermore, investors have faced two major market drops since the pandemic, experiencing a nearly 30% fall in global stocks in 2020 and around a 20% drop last year following the invasion of Ukraine.
James Blower, from Savings Guru, a comparison site, stated that the increase in rates on cash accounts and the decline in stock markets are the reasons why brokers are “fighting back and trying to encourage savers to invest.”
He added: “Despite inflation, cash Isas still look attractive with the best fixed-rate Isas now offering 5.9% tax-free returns with no risk.”
Alice Haine, from Bestinvest, mentioned that the bonus raffle was implemented to promote regular investing habits. She said: “By setting up a direct debit or standing order, people can ensure they don’t neglect long-term savings in favor of covering immediate costs, as the money automatically leaves their account before they have a chance to spend it.”
The company emphasized that while stock markets may be volatile in the short term, they typically yield higher returns than cash in the long run.
Myron Jobson, from interactive investor, suggested that savers should hold both cash and investments if they have the means to do so.
He said: “Viewing savings rates and investment returns in the same way is unhelpful, as it creates an expectation of steady annual returns when the reality is that one year could bring a double-digit return and the next could result in a loss.”
Money held in Isas is tax-free and does not count towards a saver’s personal savings allowance threshold, which currently stands at £1,000 for basic-rate taxpayers and only £500 for higher-rate taxpayers.
As a result of the higher savings rates, a higher-rate taxpayer would only need to save around £8,330 in the best one-year fixed-rate bond before exceeding their personal savings allowance. A basic-rate taxpayer would start incurring taxes on their interest on savings of approximately £16,670 or more.
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