Keep it simple – that’s what the customers want

Felix Thomson

Content Executive

The Financial Services Forum

Keep it simple – that’s what the customers want
Disillusion with stock market investments has not been dispelled by the rebound in share prices and investors have been keeping their savings in cash. Deposit accounts have seen huge inflows. Tanja Lindermeier analyses what this means in terms of products and prices for deposit taking institutions.
Volatile share prices have left investors feeling vulnerable and increasingly they have opted for the security of cash deposits, with the result that the deposit sector has outrun direct equity investment. Between 2001 and 2005, the value of the UK deposits sector grew by over 8%* annually, whereas direct equity investment remained near stagnant at 0.4%.
Net inflows indicate that consumer confidence in the stock markets has yet to be fully restored, while high deposit inflows attest to the continued attraction of this segment. Datamonitor’ new report forecasts deposit balances to grow at a compound annual growth rate of 5.6% in the next four years.
In 2000, direct equity investment totalled close to £560bn, whereas the deposit sector stood at £520bn. Buy by the end of 2002, deposits accounted for more than twice the amount invested in direct equity. By year end 2005, deposits had grown by a further 27% – yet the sector was still almost twice the size of direct equity investment, despite the fact that direct equity registered a stronger growth rate.
While there have been positive stock market trends, net inflows into direct equity have remained unstable. Net inflows for deposits, in contrast, have been continuously high in the last five years, peaking at over £40bn in 2004. Consumer preference for deposits is so far unbroken.
Compared with the volatility of the stock markets, the relative stability of interest rates has been a welcome source of security to consumers, offering much better transparency on the expected returns. Datamonitor forecasts that deposit balances will show an increase of more than 30% over the period 2005 to 2010.
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