National Savings and Investments (NS&I) announced at the end of September that they would be drastically cutting their interest rates to as low as 0.01% per annum.
This has left many cash savers scrambling to the private banks still offering accounts rates above 1%. However, with the river of new money in the form of government stimulus packages unlikely to run dry in the near future, many are predicting that the private sector will follow the government’s lead and reduce rates over the next few weeks.
However, it is not all doom and gloom.
As cash becomes less attractive, many financial professionals envisage that this wall of cash will be moved to equity markets in the hopes of generating real returns over the next few years.
This has the potential to drive equity prices up in the UK, which is good news for the 65% of the population that has money in the domestic market through pensions, ISAs, and other investments.
Cuts in interest rates will affect lower-risk takers who feel uncomfortable investing in equities because of the risk of capital loss. One option is to tie cash up for longer, with term deposits still offering more attractive interest rates. Currently, Aldermore Bank has a 12-month term offering 1.15% per annum.
However, these deposits are still providing a negative real rate of return when accounting for inflation and restrict access to capital for the period of the term.
At Foresight, we have developed Total Money Management. This strategy enables clients to determine which funds are needed for the short-term and what can be invested for the longer-term, making sure that every penny achieves the best return, meaning a better return for the lowest possible amount of risk.
If you would like one of the Foresight Wealth Strategists to show you how Total Money Management could work for you, then please contact us and we can arrange a meeting to discuss this.
With interest rates so low, you literally have nothing to lose.