Blog – June 2021

One of the most common questions we have been getting at the moment is around cash interest rates — or rather the lack of them. Clients are keen to get answers to questions such as ‘could my money be working harder for me?’ and ‘what other options do I have?’.

The major issue with holding too much cash is the current saving interest rates — which have fallen to the lowest rate in many years. The rates with high street banks are even worse as people are paying for the reassurance of a recognisable name or the convenience of a locally-based branch (although bank branches also seem to be closing at an alarming rate).

Many people like the security of having cash and want to know that they have enough cash available to deal with any unforeseen events that may happen – this is very sensible and we always encourage our clients to hold enough cash in an instant-access account to cover them for at least three (and preferably six) months’ worth of living expenses – mortgage/rent, utilities, food, insurance, travel, etc.

Even though holding cash gives the security that many clients want (subject to FSCS limits), rising inflation means that cash is losing its value in real terms each year.

So what options do you have for your savings above the amount of emergency funds you need? Firstly, if you do want to retain the ‘security of cash’ then you can be more proactive about researching and changing to providers with the best interest rates and making sure that it is something that you regularly review.

If you are prepared to tie your money up for a longer period then fixed rate accounts can mean better rates, generally the longer the fixed period the higher the level of interest. Alternatively, if you were prepared to take some risk and tie the money up for 5 years or longer then there is the potential for higher rewards.

For example, some clients this year who have had enough of their cash ISA rates being very poor have been prepared to take some risk in the search for better returns. We have been able to transfer their ISA’s which has meant they have benefitted from keeping their tax advantageous ISA status.

The new investments have been made in mixed asset funds to provide diversification and the potential for growth, although some of these are UK and overseas equities, which means more risk than they were previously undertaking. Due to the spread of investments and diversification, these clients are comfortable in trying to achieve higher returns, although this is not guaranteed.

Unfortunately, that is the choice for savers at the moment, you are paying to keep money in cash and may do so for some time longer.