Cash in the bank … risk or reward?

As Financial Advisers, we talk to a variety of clients, friends and family about the current issues regarding their savings, investments and pensions. If I had a penny for every time I heard ‘the bank is giving me a terrible rate’ I would have a pound. This makes me pose the question, have you considered investing? At this point the subject of risk emerges, ‘I do not want to lose money’, ‘I have heard markets are falling’, ‘My friend Dave said…’

Over the last few years we have seen many changes in politics and the economy, the media have played a huge part in creating the uncertainty that people feel. For this reason, people still feel cash is king. Any asset you hold financially whether it be equities, fixed interest, property or cash will have some form of risk. I feel that once we understand this we can look at ways to mitigate and reduce this risk in part.

If you hold large sums of cash in the bank is it really working for you. The chances are you are receiving lower interest rates, some as low as 0.1% per annum. This is a risk however if you are hoping to grow your funds or have a goal to reach this may mean saving a larger amount or extending the amount of time you have to save.

Now low interest rates may not be considered a risk when looked at in isolation. However, it is vital with longer term savings to consider the impact of inflation (the cost of living), this could have a big impact on your moneys true value.

£10,000 held for 5 years receiving 1% per annum would be worth £9,289 assuming inflation was 2.5%

Personal savings allowance, capital gains allowance, ISA allowance, pension tax relief a few of the available reliefs and allowances that the government provides and these can change from year to year. ISA savings have been the mainstay for many people over the years. However, with the options now available does it make a difference? Are you maximising what the government give to you?

Time, inertia or apathy – you may not review your savings on a regular basis, you might not have the time, rates change and often it can be easy to go with the flow however a few simple tweaks could soon have you moving in the right direction. When was the last time you really considered what you were getting?