It’s important to make the most of what the market is offering when it comes to savings rates to ensure that cash is as protected from inflation degradation as much as possible. We, as consumers, don’t have any influence on either the savings rates in the market currently or the rate of inflation, and therefore a few key things can be done in order to make the most of the current situation.
The savings market in the UK is getting battered by a number of economic and political factors. Normally, with the current increase in competition in the savings market, there would be a corresponding increase in the interest rate offering for savers. But with economic uncertainty we are seeing conservative rates. On top of lower interest rates, we are also seeing the inflation rate increase which does little for the future returns of our cash.
Save now, don’t wait until the rates increase
A lot of people that we speak to often question the point of savings on a cash management platform as the returns are historically low. We would contend that now is the perfect time as incentives to monitor and move cash between providers is low, yet in such a tight market every percentage point increase helps.
Take for example £100,000 in a high street bank: A typical 1 year account would be earning 0.40% (Santander eSaver account) that’s £400.00 interest.
An important consideration to factor in when thinking about savings is the compounding of your interest and the significant increase this can have. This will go a long way to mitigate the inflation depression on your savings.
The compound effect on this cash if left in the Santander account (assuming that the rate remains the same) is £401.60 in year two.
On the Insignis Cash platform currently, £100,000 in two 1- year term accounts will earn £1,835 (1.84% blended yield) in interest a year, significantly more than the current high street example. If a client wishes to compound that, and using the same assumptions above for year 2, then the interest at the end of the following year will be £1,867.
Don’t forget this also includes the FSCS protection eligibility of using two different accounts versus a single account, without the hassle of opening these yourself.
The key to getting the most out of compounding, is of course, action. Do something now so that there is interest to compound. There is no point waiting until the rates increase and then save. Rather, save now and use a cash management service to move your money into a better interest-bearing account when the time comes.
Of course, you also need to factor inflation into the equation to understand the long-term value of the cash, but there is largely nothing that we can do to alter that on an individual basis. You would have to tie your cash away for longer than a year in order to benefit from an interest rate that beats the current rate of inflation. In uncertain economic times, not surprisingly, there are not a lot of takers for this option.
Use Cash Management platforms to consistently get better rates
The continuous management of any deposit and constant review of the bank interest rates (to ensure that the cash is always making the most of the better banking rates available) is vital. Looking after and moving each tranche of cash to other accounts, according to your requirements is a time-consuming endeavour, one that a cash savings platform can take care of for you.
Decrease the degradation of your savings by inflation as much as you can and make the most of the saving account interest rates that are currently on offer.
Call us today to find out how we can help you with cash management on 01223 200 674 or email us at email@example.com.