My father in law has never fully understood our philosophy of buying and holding a diversified range of passively managed funds and 15 years later – despite my repetitively dull answer – he still asks if I have any hot tips for him.
He has also made a dedicated attempt to improve his returns on cash, as he likes to keep a fairly healthy amount in liquid funds and for some time now, unless you are prepared to take on risks which you may not be able to quantify, most deposit based accounts cannot offer an interest rate that beats rising prices.
When reviewing cash holdings with clients, I will explore the viability of an equity based portfolio for funds with a longer investment timescale, however there is still the issue of how to get the best rate for monies which have to be kept in cash.
Banking institutions will offer enhanced rates and use canny marketing to make you think that your cash is working hard for you, however in order to maintain a competitive interest rate, you need to be prepared to move your money around.
My father in law has an impressive collection of corporate pens/bookmarks/mugs etc to reflect the work he has put in to gain the extra basis points on his savings. His workload increased when they were moving house and had a significant sum to hold in cash for a relatively short time. He was well aware of the compensation limits and was faced with either accepting the risk of an institution failing or splitting their funds across a range of accounts.
There are some alternatives to consider including cash management services which aim to take the stress out of shopping around for the best rates. They split your funds across a number of varying institutions with the aim of achieving a higher rate of interest on the monies than you could get at a bank or building society and to increase your overall compensation limit above £85,000. These services have proved to be very useful for some clients, however when investigating further options recently, I realised that National Savings & Investments – NS&I – offer several accounts which are not only very competitive but are backed by the Treasury. The Income Bonds are instant access with no penalty and are paying a rate of 1.15% currently on cash holdings up to £1m.
For the time being this would be my “hot tip”, however we will have to keep an eye on an ever changing marketplace!
– Jane Ball