Savings, in a low interest environment

With interest rates still showing little likelihood of rising for retail savers, like most of us using the high street, what do we do to make the best of what is available? Leaving money in an old bank account is not a good plan as banks, almost without exception, do little to encourage you to get more interest on your money.

 

Martin-Redman Partners writes:

Many banks pay nothing on current accounts and can be very mean on even designated deposit accounts, with 0.1% to 0.5% per annum not unusual. Looking at the best buy tables as prompted by the national newspapers, (http://www.telegraph.co.uk/finance/personalfinance/savings/11358135/Four-ways-banks-rip-off-savers-and-how-to-beat-them.html), suggests that the best rates, without significant strings are 1.4% per annum.

Some banks have much more generous offers, but there are significant strings attached, like the need to deposit a minimum amount every month, often £1,000 per month, or a limit to the balance paid at the higher rate, say £5,000 or less. As these rates are often 3%-5%, they can be very attractive, if you meet the criteria. Both TSB and the Santander have examples of the enhanced accounts, but read the terms and conditions carefully, before you move your current account.

My wife has such an enhanced current account and does well with it; not everyone is on a regular salary, so may not be able to meet the account requirements, month on month, so would be better off with a basic current account with a sweep facility to a deposit account.

As savings rates are low, can you afford to invest your money rather than save it? Savings suggest money you can get quickly in an emergency, security of worth, (it will be worth what you put in), and the FSCS guarantee over the deposited funds. Inflation and the opportunities in the investment realm suggest that a return of 5% or more per annum is not unreasonable, but cannot be guaranteed.

I would suggest that in an ideal world, most people with surplus funds at the end of a month, should have open and available:

A current account with either a minimum balance or no more than the maximum allowed to benefit from any enhanced interest rate.

  • An easy-access deposit account with no more than 1 month’s net salary
  • A easy-access cash ISA with not much more than 2 month’s net salary
  • A notice required cash ISA containing as much additional cash as you feel you need for security, and paying for this year’s holiday or for the next new car/kitchen/bathroom etc.

            (not all opened in the same tax year – ISAs are subject to strict annual limits!)

Everything else should be treated as an investment, with stocks and share ISAs, filled to the annual limit where ever possible as a basis, with other investment vehicles, like pensions, picked according to need, funding available and the level of acceptable investment risk.

A financial adviser, like ourselves, can suggest an efficient way to hold surplus funds, balancing a need for short-term security with investment returns, without wasting opportunity or cash.

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If you would like to know more about how we can help you plan and realise your financial goals then contact us at info@martin-redmanpartners.co.uk or call us on 01223 792 196.

The information contained is for guidance only and does not constitute financial advice. It is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change. Accordingly no responsibility can be assumed by Martin-Redman Partners its officers or employees, for any loss in connection with the content hereof and any such action or inaction.

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