The phrase “Cash is King” was purportedly coined by the CEO of Volvo in 1988 when looking back at the global equity market crash the previous year, and it was trotted out again in 2008 during the global financial crisis. In truth cash will always have a place as it should be seen as both a Reserve Fund that we access to pay for known expenditure (home improvements, holidays, gifts etc) and also an Emergency Fund for the unplanned short-term expenditure. It is suggested that we should all hold at least 12 months known expenditure in cash as a reserve.
With inflation (CPI) currently at 0.60%* but expected to rise and the Bank of England base rate at its lowest level for 325 years at 0.10% deposit interest rates are close to 0% and therefore we should not expect our cash savings to keep pace with the cost of inflation in 2021.
One lesson we all learned last year is the importance of having a cash reserve as a safety net should the unexpected happen and whilst we would all like to see a real return on our cash savings the peace of mind that comes with knowing you have access to cash if needed should not be underestimated.
The key point you should look at when reviewing your cash reserves when most interest rates are at an all-time low has therefore got to be deposit protection. The FSCS (Financial Services Compensation Scheme) protects cash deposits up to £85,000 per person, per institution.
National Savings & Investment (NS&I) have no protection limit as they are backed by HM Treasury, see https://www.nsandi.com/get-to-know-us/security/protect-your-money the only limit is the amount that can be held in the type of account. Therefore, if you are worried about consumer protection, research NS&I, but accept there is a trade off for interest rates V protection, with their Direct Saver paying 0.15% (gross) and Income Bonds now down to 0.01% (gross).
After an unprecedented 2020 speaking to a Financial Planner about how to deploy cash to match your objectives in 2021 has never been more important. Contact us today on 01225 308333 or email Stuart.Doughty@mogersdrewett.com for a free no obligation financial review.
*source ONS 16.12.20