Another disappointment for cash savers

A rise in interest rates in 2014 now looks increasingly unlikely. Following the Bank of England’s recent quarterly inflation report, analysts have changed their forecasts and warn that interest rates are likely to stay at 0.5% until early 2015.

Cash savers once again face disappointment.

To coincide with this, those who opened a cash NISA or an ISA this year are being urged to check the rate of interest they are being paid on their accounts. The attractive rates offered on the launch of the new NISA have already been cut by some providers.

The list of problems does not stop there: many savings accounts are not paying enough in interest in order to keep up with the rate of inflation. In other words, the cost of the goods we buy is rising at a faster pace than the interest being paid on some cash based accounts. This means savings are slowly crumbling in value, without savers necessarily realising this is happening.

It seems like the days when money could be placed into a savings account and savers could be assured they’d get a worthwhile return are long gone. In the current climate of low interest rates, cash savings need to be more carefully managed.

There are alternative places to hold your money which take a cautious approach to stock market investing. For savers, it is all about putting good financial planning principles in place first, and then deciding the best place for your money, to suit your needs.

This means deciding what the savings are to be used for, be it saving for school fees, money for retirement or even a safety cushion of cash for emergencies. Then you must make sure your cash is working to help you reach those goals, holding some money which is readily available in cash savings accounts and holding other monies which are for longer term goals in a plan where they may benefit from greater returns.

If you have large amounts of cash savings, these are three basic questions you need to consider:

1. What is the purpose for your cash savings: what is it to be used for? Too often people hold large sums in cash but don’t have a clear idea about how it is to be used, which is why it is left in cash savings accounts.

2. If you are saving for a number of reasons, then consider splitting this cash into different types of accounts, each with a clear due date and goal. This may enable you to lock away some of your savings into accounts with some exposure to stocks and shares ,which are invested for at least five years and could provide better returns, albeit with an element of investment risk if you can tolerate this.

If you are unsure about any of these answers, or would like to talk to a financial planner about how your money could be better managed to meet financial goals in your life, talk to Sanlam. Our financial planners are qualified and experienced in helping their clients meet their financial goals at every stage of life. To find out more about how to make your cash savings work harder for you, email letstalk@sanlam.co.uk

3. Consider your current exposure to risk. Is the interest rate on your cash savings account keeping up with inflation? Are you using your NISA allowance for this year? Do you have more than £85,000 held with any one financial provider? The Financial Services Compensation Scheme currently provides financial protection up to £85,000 for your money held in savings and current accounts in the event that the provider cannot meet its obligations. If your money is in a joint account however each of you can claim up to the maximum.

This article is for information purposes and should not be treated as advice. Individual circumstances should always be considered prior to purchasing any financial products. For further information please contact your Wealth Planner.

Sanlam is a trading name of Sanlam Wealth Planning UK Ltd (Reg. in England 3879955) and English Mutual Ltd (Reg. in England 6685913). English Mutual Ltd is an appointed representative of Sanlam Wealth Planning UK Ltd which is authorised and regulated by the Financial Conduct Authority.