Interest rates are low: what next for your finances?

Since the Bank of England cut interest rates to 0.25% on 4 August savers everywhere have been left wondering what to do with their cash. Do you accept the cut or look to make it work harder?

Cash is no longer king

Some banks have announced that they won’t be offering any returns on cash savings, others have halved the rate of return on their previously attractive account and some are even threatening to start charging customers for having money in their accounts.

It is becoming increasingly difficult for savers to protect the real value of their hard-earned money. Research from Moneyfacts showed that just 266 of the 644 savings accounts currently on the market can beat or match inflation. On top of this only 12 of those offer flexible access, so if you might need your money in a hurry your options are limited.

This is a new world of saving and indeed personal finance. It brings into question everything that many of us have been taught by previous generations. Having cash in a bank account is now much like storing cash under the mattress.

Investing as an alternative

Many are now turning to investments so that money is still able to grow and have the chance of beating inflation. Inflation impacts the real value of your money, if you’re not currently achieving at least 0.9% on your cash savings you’re losing money. Many economists predict it could rise to as much as 3% by the end of next year.

Investing is one way to combat this problem; according to the Barclays Equity Gilt Survey you have a 75% chance of an investment outperforming cash over a five-year period. Investing comes with different risks to cash savings; as well as the risk of inflation erosion, you take on volatility risk when investing. That means the value of your savings can go down as well as up and you may not get back the full amount you invested.

Before starting to invest you should ask yourself three questions:

  1. Do you understand financial markets?
  2. Will you be charged less than 1% including underlying fund costs and exit fees?
  3. Are you happy to lose quick access to your money?

If you answer no to any of these questions a digital solution, such as that offered by Moneyfarm, that offers low cost, professionally managed, tailored portfolios could be just what you need.

Many savvy cash savers are put off investing by high costs, the overwhelming level of information and the fact that you can’t access your money quickly; but since the advent of digital wealth management this is no longer true.

Moneyfarm is able to offer you an investment portfolio managed by a team of professionals, tailored to your financial understanding and appetite for risk, all at a low cost.

The first £15,000 will be managed free of charge when you use the code SILVERSURFERS at registration and with Moneyfarm there are no fees to get started, nor are there exit fees.

Those things that you heard about investing just aren’t true anymore, it’s time to make your money work harder.


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