Diversification has long been a widely accepted concept when it comes to investing. The idea is simple: by spreading your investments across various assets, you can reduce the overall risk of your portfolio. It makes sense, as different assets will perform differently under various market conditions, providing differing risk levels and returns.
However, this approach is all too often forgotten when it comes to cash. The recent collapse of Silicon Valley Bank provides a sharp wake-up call on the need to diversify cash and counterparty risk. This has provided a real case reminder of the genuine risks of exposure to a single bank and the little protection this provides.
We often consider cash a low-risk option, more stable than other assets such as stocks or bonds. But it’s important to remember that even cash assets can be subject to risks, particularly in the current economic climate.
While it’s true that cash is less volatile than other assets, it’s important to note that it’s not entirely immune to market fluctuations. Holding your cash in a single bank account provides a far greater risk. Many people are unaware that the government’s deposit insurance scheme may not fully protect their cash held in a bank. In the UK, the FSCS protection only covers funds up to £85,000 per eligible person, per bank.
Cash diversification is essential to mitigate the risk of loss. This can involve spreading your cash across different accounts, different currencies, and even different types of cash equivalents, such as money market funds or short-term bond funds. By spreading the risk across various accounts and investments, you can reduce the likelihood of a significant loss. Similarly, investing across multiple cash savings products ensures you can access funds when needed whilst ensuring some are locked in longer-term products, providing greater returns.
Cash management platforms are great at helping you diversify your cash savings by facilitating access to several savings products across various banks all in one place.
At Insignis Cash Solution, we are committed to providing the best solution to mitigate risk, maximising FSCS protection eligibility and increasing the return on your hard earnt cash.
We offer over 2,500 cash products on the Insignis platform, from Easy access to 5-year Fixed terms, across 40 UK Banks and Building Societies. This extensive range of products allows you to spread your funds across different savings accounts to meet your liquidity requirements, increase your FSCS protection eligibility and gain better interest rates on your cash. We offer products suitable across a wide range of client types, from private individuals to SMEs, FTSE250 firms and complex trusts.
Considering the recent events, the market has had a shock into action. It has given businesses and individuals alike a curt reminder of the importance of diversifying their cash to reduce risk.