Savers turn to investment funds

Poor returns on conventional deposit accounts saw more and more savers choosing instead to put their money into investment funds last year.

Figures released by the Investment Management Association (IMA) have revealed that in 2009 some £25.8 billion was placed in unit trusts and open-ended investment companies, those that allow people to pool their funds in order to buy stocks and shares.

This marked the highest level of investment since IMA records began in 1992, far outstripping the previous record high of £17.7 billion registered in 2000.

The IMA said that a combination of low returns on conventional high street savings accounts and a recession-driven move to greater savings had contributed to the surge in investment sales.

With the official Bank of England rate marooned at 0.5 per cent, many bank and building society savings accounts have been offering minimal rates of return.

The effect has been to push savers towards other, better remunerated sources of investment, the IMA added.

In December alone, £2.2 billion were invested in unit trusts and open-ended investment companies, making it nine consecutive months in which investments have topped £2 billion.

Of the money invested last year, £9.9 billion went into bonds and £7.3 billion into shares.

This contrasted with 2008 when £1.3 billion more was taken out of equities than was invested.

The trend towards investment was reflected in the value of managed funds. By the end of 2009, funds under management were worth £480.8 billion, compared with a value of just £361.7 billion in the previous year.

The boom in investment also coloured the figures for stocks and shares ISAs which enable savers to benefit from tax-free returns on stock market investments.

Even taking into account those savers who withdrew their investments, sales of stocks and shares ISAs hit £2.8 billion last year.

This interrupted a run of five successive years in which more money had been withdrawn from stocks and shares ISAs than had been invested in them.