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Study finds cash in savings accounts 'has fared better than stock market'

20 Jun 2016

Those who have saved using best buy cash accounts over the past two decades have received better returns than they would have done had they put money into a FTSE 100 tracker fund, a new report has suggested.

The research, which was carried out by financial journalist Paul Lewis, found that investments in tracker funds gradually lost money up to a third of the time, whereas levels of cash within a savings account always grew.

Mr Lewis analysed the period from 1995 to 2016, comparing returns from the top one-year deposit account for each year to the money accumulated in a tracker fund, which emulated the performance of the top 100 shares within the stock market.

Cash in best buy savings accounts beat the tracker fund in 57% of 192 rolling five-year periods, beginning on 1 January 1995.

However, money invested into a best buy savings account over the entire period only provided an average annual compound return of 5%, whereas a tracker fund would have produced an annual return of 6%.

Commenting on the findings, Mr Lewis said: ‘Cash is not right for everyone in all circumstances. But for a cautious person investing for periods of up to 20 years, this research indicates that well-managed active cash beat a FTSE 100 tracker more often than not. And, unlike a shares investment, it can never lose anyone money.’

In the long-term, share investments are historically held to outperform cash accounts in terms of the total returns they generate, and experts have emphasised that the approach adopted in the study requires savers to actively relocate their cash funds into the latest best buy account on an annual basis.

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