UHY Ross Brooke Chartered Accountants

What to do with your savings?

graph inflation rpi

Saving used to be the foundation of good financial management. Putting cash away to deal with emergencies, or to build up a cash sum for anything from a deposit on a first home to our old age was the first step to financial security.

The banks and building societies were only too pleased to help us become savers. They needed our cash to lend out to other customers and they would pay interest to encourage us to leave it on deposit with them, but times have changed. It looks as though the banks don’t want your savings and they are certainly not keen on paying a good rate of interest on them.

The Covid crisis is still not over, but it could be that normal life is becoming a real prospect for the near future. The Bank of England has even raised its own interest rate – the rate that underpins the rates the high street banks use – in an attempt to get inflation under control as the economy bounces back.

But although the base rate increased from 0.1% to 0.75% in recent months, the banks don’t seem too keen on passing on the increase to savers. You might still only earn 0.01% on easy-access deals from the big banks; Barclays, Lloyds (including Halifax), HSBC and NatWest (including Royal Bank of Scotland).

The simple reason is that they are already awash with cash, having benefited from an additional £187 billion savings accumulated since the start of the pandemic and total of around £974 billion sitting in easy-access accounts.

They don’t need to pay you to look after your money and the reserves are so high this is unlikely to change any time soon.

It is possible to earn slightly better rates on your savings with some smaller banks and online providers.

Your financial adviser could help you find the best performing accounts, but it might still be difficult to earn more than around 0.75%.

This is of course substantially below the current inflation rate of 6.2%, meaning that your savings will decline in value in real terms.

So what are the alternatives?

With investments, your cash is used to buy something, such as stocks and shares. These may rise and fall in the short-term, but if you invest carefully for a few years, you have an excellent chance of riding out these ups and downs and taking advantage of long-term potential growth in the markets to provide capital growth – or income.

Starting investing can seem a big step, but with help from your financial adviser, investing – in a tax-efficient ISA – can be as easy as saving. Ask them to help you select managed funds that are right for you.

Please note: The information contained in this article is based on general knowledge and does not constitute financial advice or a recommendation to suitable investment strategy, you should seek independent financial advice before embarking on any course of action. Please talk to us and we can recommend an independent adviser.

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