A new report from Vanguard estimates that $51.7 trillion is sitting in savings across OECD countries, much of it remaining uninvested and potentially limiting long-term returns for individuals.
Australian households continue to favour saving over investing, with cash holdings far outpacing capital market investments.
As of March 2025, households held $1.87 trillion in currency and deposits (including savings and term accounts), marking a quarterly increase of $29.2 billion, according to the Australian Bureau of Statistics (ABS).
In contrast, direct investments in shares and other equity reached $1.57 trillion, rising by just $7.3 billion over the same period.
Financial experts warn that underutilising these savings in productive investments could hinder wealth growth and economic dynamism. Although capital market participation is widely promoted across many countries, Australia's preference for traditional savings methods places it at odds with its economic peers.
Australia’s cautious households could be missing out
Vanguard’s research shows that if Australians shifted just 10% of their excess savings from bank accounts into investments, it could pump a staggering $185 billion into the capital markets.
Policymakers grapple with the tough task of creating retail investment frameworks that deliver solid long-term returns for investors while supporting healthy, resilient capital markets.
“While Australia stacks up relatively well on a global stage in terms of supporting retail investors, there are key opportunities for Australian policymakers to further improve the investment landscape outside of superannuation,” said Daniel Shrimski, Managing Director of Vanguard Australia.
“Australians hold some 23% of their household financial assets in cash and deposits, yet over the last decade the average annual return from cash has been just 2%. Other investments have produced much higher returns,” he added.
Vanguard’s research calls for bold reforms to ramp up Australian investment, including easier access to affordable financial advice, tax breaks outside super, stronger financial education, and tougher rules on fees and market competition.
This is generally corroborated by 2024's InfoChoice State of Aussie Savings Survey; it found savings accounts were the primary vehicle for savings with 57.4% having one as their main method.
At the same time, however, nearly a third of respondents had less than $5,000 in savings, which could explain the lack of appetite to invest that money which carries higher risks.
What’s holding Australians back from investing?
According to Vanguard’s Core Components of a Successful Retail Investment System, Australians face multiple hurdles that hold them back from investing more actively.
Half of Australians don’t understand their investment fees, and nearly 60% of those that have reviewed their fees find them confusing and hard to compare. This cost confusion is just the tip of the iceberg.
Adding to the challenge, complex and unclear product disclosures leave investors unsure about what they’re actually buying, making it difficult to make confident decisions. High or hidden fees only add fuel to the fire, reducing potential returns and discouraging many from shifting money from safe savings into investments.
On top of that, limited time, motivation, and investment knowledge lead many to rely heavily on default or pre-approved options, rather than actively managing their portfolios.
Financial literacy remains low, further undermining willingness to participate in capital markets. Without better education and support, hesitation to invest will persist. Meanwhile, concerns about biased advice and conflicts of interest, particularly in commission-based models, fuel distrust and add another layer of complexity for would-be investors.
Vanguard suggests addressing these issues is crucial for unlocking investor confidence and driving growth in Australia’s capital markets.
Photo by Pixabay via Pexels
Ready, Set, Buy!
Learn everything you need to know about buying property – from choosing the right property and home loan, to the purchasing process, tips to save money and more!
With bonus Q&A sheet and Crossword!
Harry O'Sullivan
Harrison Astbury
