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Cash is King

Cash is King. Or so they used to say. Of course today it’s more like a rather distant limp Baron, with all time low interest rates of 0.25%.  With no imminent signs of change. Awful times for savers. Good times for borrowers.

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Let’s be clear – cash is not risky, you know what you’re getting, we should all ideally have at least 3 months’ salary in a cash emergency fund AND for shorter-term saving it makes sense. But for savers the returns are really dire and with some companies paying dividends of around 3-6%, don’t just assume cash is your only option for an income.

Here are some pointers.

  • Rule One – there is no such thing as a free lunch. If you rate chase, that’s fine, but remember that something called the Financial Services Compensation Scheme only covers the first £75,000 in most institutions. That means if the sky falls in, the Government will protect this much for you. Check your bank or savings supplier is covered by this scheme.
  • Rule Two – if you just pile up cash in your current account, there is only likely to be one winner. And that’s not you and it’s not us – it’s the bank. Do shop around for the best cash deals. As we speak, for example, TSB and Nationwide pay 4.89% on the first £2,500 and £2,000 respectively. So you can make your cash work harder than a limp 0.0001%! Just be careful about rate chasing – current account fraud is on the rise and there’s an argument for using a savings account for your cash. NS&I pays 1% and it’s probably more secure. We think that there will increasingly be trade-offs between convenience and high headline rates, and security.
  • Rule Three – shop around for Children’s Savings Accounts. For example, the Halifax and Nationwide currently pay 3% on Junior ISAs.
  • Rule Four – shop around for ISAs. For example, at time of writing, Tesco Bank is paying 1.1% on a one year fixed term ISA.

Try Savings Champion or This is Money for reliable third-party cash Best Buy Tables. Do check as rates will move and change. But the key point is to shop around and not stick with your bank out of some sense of misplaced, one-way loyalty!

Here’s a real-life example of a debate someone is having about cash right now. Lindsay, 63, is fed up of low returns from cash but nervous about the stock market too. She asked us how she could make her money work harder.

 

Holly Mackay

Content correct as of November 2016

 

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Important stuff!

Holly and the team have worked in the finance industry for many years but we are not regulated to give you personal financial advice, nor are we regulated by the industry watchdog (although we do talk to them a lot). For every story on this site about a good investment, or something which went up by 10% or made someone £200, we could share a story about a bad investment, something which fell by 10% or lost someone £200. Nothing’s certain when investing so if you’re really unsure, or dealing with complicated stuff like working out what to do with a pension when you retire, we’d really suggest you get some financial advice. Here are some tips on  how to pick a good financial adviser. Or check out Unbiased or VouchedFor. Just remember, commission has been banned now so advisers need to be very clear with you about what you are paying them and when.