Managing cash

11 July 2022

We've seen a lot of volatility in most investment markets in 2022 so far (cryptocurrencies included), particularly over these last few weeks. Concerns about economic growth and inflation are likely to persist over the balance of the year and into 2023. Sitting tight on any investment / pension funds you hold is usually worthwhile, rather than making any significant changes at this time.

However, with the Organisation for Economic Co-operation and Development (OECD) suggesting in June 2022 that inflation will hit double digit figures in 2022 in the UK, and will average 7.4% in 2023 (https://www.ft.com/content/ee2ce542-eb19-48c1-9a1d-57a8200a47ae) this does not really help those with cash / deposit holdings, as the real purchasing power of these holdings is being eroded. Sure, the Bank of England is likely to increase base interest rates further, as will many other nations, with the aim of controlling inflation, at least in part, and this might help deposit returns (if deposit takers actually pass the increase on!).

Managing cash may well be less than straight-forward, and apathy can reign as real values are reduced. We also need to be conscious of the deposit protection limit for bank and building society holdings of £85,000 (per eligible person, per bank / building society, doubled for joint accounts).

The first point is to shop around for deposit rates, checking that any provider offering good rates is covered by the Financial Services Compensation Scheme (FSCS) for the £85,000 protection noted above. One key point here is that one notable provider, National Savings & Investments (NS&I), is backed by the government and has no protection limit (just limits on the amounts that can be invested in their product range).

Also, check any terms and conditions for fixed rate offers. Competitive terms now for say two or three years might look poor in a few months' time if the Bank of England raises its rates quickly. You might need to commit your funds for the term being offered, so check the small print on the T&C's.

Don't forget about tax. The first £1,000 gross of deposit interest in a tax year is tax free (for basic rate tax payers). This is the case for each individual, so if you are married or in a civil partnership, cash could be held under both names to use both personal savings allowances. Of course, don't forget to use your ISA allowance each tax year (up to £20,000 each) to add an extra shield from tax for any interest you receive.

Finally, as ever, if it looks too good to be true, it usually is. Scammers are going to be keen to get hold of your funds, so look out for inflated rates of return being offered…that will never materialise.

If you need some help with your money planning, then talk to Chapters Financial about what might be prudent, and what can be achieved. No individual advice is provided within this blog.

Keith Churchouse FPFS
Director
CFP Chartered FCSI
Chartered Financial Planner

Chapters Financial Limited is authorised and regulated by the Financial Conduct Authority, number 402899