by Insignis Cash Solutions in Industry Perspective
Giles Hutson – Insignis Cash Management
Businesses and individuals save for multiple reasons but seek the same outcomes:
- earning interest on their deposits
- reducing bank exposure
- access to cash when they need it
- no change to their existing bank account
The key however, is to manage cash savings on a continual basis to get the most from it.
Actively Managed Cash
You will need to consider several factors when looking at the cash investment, namely, the security, liquidity and return. Choosing where to invest funds for example from divorce proceedings or major asset disposals, while keeping them protected and retaining their value, is tricky. Finding the best bank account involves shopping around which can be an onerous task for the time-poor.
The FSCS protection, currently available for amounts of up to £85,000 per bank institution is an ideal way to protect money from risk. It is also important to be aware that the FSCS temporary high balance allowance gives an individual up to £1m of protection for a six-month period. This should be maximised around major liquidity events such as the sale of a main residence, until you find an alternative.
Of course, interest rates are another vital step to ensure that you receive a good return on the cash. Today’s interest rates are at historical lows, but there is some movement in rates predicted by the Bank of England base rate increases in the coming months. Further industry changes, for example the Term Funding Scheme which ended in February 2018, will help to drive the increases in rates from the banks. This, coupled with more challenger banks coming into the market and increased competition, will go a long way towards ensuring that the returns for cash will improve. This means there is even more incentive to take an active approach.
It’s all very well placing the cash into an account, but to keep up to date with the interest rate that the account hinges on is important.
Drivers behind active cash management
If you are considering using a cash management platform, it is important to ensure that liquidity requirements are met and take into consideration the following elements:
- All monies should be stored in savings and deposit accounts with a UK banking license and covered by the FSCS deposit protection scheme
- The deposit must remain in your name for an individual account or the business name at all times
- There should be no government or corporate bonds
- No tied products such as current accounts
- No peer-to-peer investing
A managed account should keep up to date with any fluctuations in interest rates, banking terms and accounts, and move money when and where necessary.
Active cash management takes advantage of technological advances as well as industry tailwinds such as regulatory change and the growth of challenger banks. While these developments bring with them a host of potential day-to-day benefits for clients, the importance of active cash management, particularly during liquidity events cannot be ignored.