Last month, the Bank of England Monetary Policy Committee (MPC) lowered the Bank Rate from 0.25% to an all-time low of 0.1% in an emergency move to support the UK economy in the face of the coronavirus pandemic. As we know, rate cuts are designed to make borrowing cheaper and to encourage spending, but what about those with cash savings?
Stuart Coombe, Chartered Financial Planner at financial experts Old Mill says “while it may be tempting to move out of cash, it’s still the cornerstone of financial planning, and remains the safest place to keep your cash in the short term” He advises savers not to make any rash decisions in the current market.
“Keeping enough money easily accessible on deposit is a high priority for your financial security and this should be one of the foundations of your personal financial plan,” explains Stuart.
“We know it’s tempting to look at alternatives to cash deposits when savings rates are so low. And whilst we believe that investment portfolios will likely deliver better long-term returns, this is not a risk-free option and therefore moving funds from a very safe environment to one where capital is at risk needs to be considered carefully and as part of your longer-term plan.
“That said, for money you are prepared to take a long-term view on, with stock markets significantly lower than at the beginning of the year, this could prove to be an opportune moment to invest.”
However, says Stuart, while it’s important to keep some cash, it’s worth considering the protection afforded by The Financial Services Compensation Scheme (FSCS) in terms of which financial institutions you place your saving with.
“The FSCS was established after the credit crisis is 2008 to protect savers if their bank goes under. And it’s important to reiterate that the FSCS protects up to £85,000 worth of cash savings per individual (or business), per financial institution, which is not the same as per bank.
“For example, if you have savings of £85,000 or more with two different banks but they are owned by the same institution with just one authorisation e.g Halifax and Birmingham Midshires, you’re only covered for a total of £85,000.”
Stuart advises all savers should do the following to give themselves peace of mind during these uncertain times.
Find out which financial institution owns your bank
“There are online tools available, for example, https://www.which.co.uk/money/savings-and-isas/savings-accounts/fscs-are-my-savings-safe-acjlu3l9hd48#Who%20owns%20who
Stay within the limit
“If you have savings with two banks under the same banking authorisation and your savings with those banks exceeds £85,000, it might be worth transferring the excess to an account with another bank, or use National Savings and Investments which have 100% protection as they are backed by the UK Government,” advises Stuart.
Open a joint account
“If you don’t want to spread your savings across banks,” says Stuart, “a joint account with your partner will essentially double your coverage as the FSCS covers you per individual.”
Think twice about offshore banking
“Although the higher rates of interest may be attractive, banks outside the UK may not be covered by the FSCS.”
Stuart concludes: “If you want to look at investment portfolios and how they could be a part of your longer-term investment plans, or want to talk about the safest way to save, get in touch with Old Mill and we will be happy to advise https://om.uk/contact-us/.”