Bank base rates currently stand at 0.1% in the UK with similarly low rates in the US and Europe. I think it is unlikely that there will be much appetite for interest rates to rise in the near future particularly with the enormous levels of debt that governments have been required to take on as a result of the Covid 19 pandemic. National Savings & Investments (NS&I) until recently offered some respite against poor interest rates on cash savings but rates here will also be reducing across their product range from 24th November 2020.
In addition, many of you will have noticed or in fact may already be being charged by your bank to hold cash either through a monthly bank charge or having to commit to a regular payment into an account to receive any form of interest. Some accounts will be paying 0% interest, so even with inflation (CPI) running at a low of 0.5% pa the purchasing power of your money is being eroded. It is worth pointing out that Premium Bonds (via NS&I), a maximum holding of £50,000, remain popular with our clients. No interest is payable, but you are entered into a monthly prize draw with the possibility of a tax-free payment. NS&I products having the benefits of being backed by HM Treasury, with the products being described as guaranteed.
Cash therefore needs to be treated as a safe haven for your emergency – contingency fund. As a rough rule of thumb, 6 to 9 months of essential spend (utility bills, council tax, food, clothing) should be an adequate amount in most instances. Having said this, we understand that many of our clients will have a comfort level of cash significantly higher than this amount for a whole range of reasons e.g. planned gifts to children, tolerance to investment risk.
Alternatives to holding funds in cash will always introduce an element of risk meaning that your capital has the chance of moving both up and down in value over time. If funds can be made available for investment, then it is important to have fully considered the investment period – time frame. Usually, our clients will be comfortable taking on a controlled level of investment risk if they have a cash cushion and this is backed up by a personalised cash flow plan.
A personalised cash flow plan allows you to budget, what’s coming in and what’s going out. What plans and expenses you have in the future. What do you want to do, when do you want to do it and perhaps who do you want to do it with (family, friends, clubs and societies etc)?
If you would like to put in place a personalised cash flow plan and see if your assets, pensions, investments and savings are working as hard as they can for you please do get in contact.