10 Jan 2014

Are Your Savings Guaranteed To Lose Money Over The Next 12 months?

Are Your Savings Guaranteed To Lose Money Over The Next 12 months?

Duncan Mellis, Independent Financial Adviser, reflects on the reality of interest rates and the options open to you as a saver-and suggests doing nothing could prove to be a costly exercise.

Duncan Mellis, Independent Financial Adviser, reflects on the reality of interest rates and the options open to you as a saver-and suggests doing nothing could prove to be a costly exercise.

With the Bank of England base rate still at its lowest level of 0.5%, with no signs of an increase in the near future and some analyst and professionals advising that these historically low rates may continue for some time into the future.

Low interest rates may be great news for borrowers but for savers, who were possibly relying on their nest eggs to supplement income or just to obtain a reasonable return then they can have a devastating effect combined with higher inflation rates and cost of living increases.

The poor returns available to savers from high street banks can be highlighted by the fact that Halifax (ISA saver fixed) is currently offering an interest rate of 2.6% but with a 3 year term and early access is subject to loss of 270 days tax-free interest. (Source Money Supermarket.com 15/11/2013).

Together with low interest rates inflation has a hard hitting effect on the long term value of savings and the average UK household risks losing 25% of its hard earned savings because of inflation, figures from Allianz GI have found.

The data shows that a savings pot worth £10,000 in today’s money could be worth just £7,684 in a decade’s time if kept in cash alongside the current low interest rate environment.

Investors could be entering a risk-avoidance trap where they take silent risk of which they are unaware – that is by doing nothing the real value of their capital is almost certainly Declining.

This means that for investors it is even more important to obtain independent financial advice on maximising returns on savings and investments through financial planning.

This has become more difficult for the man in the street due to a high number of banks pulling out of what was seen as “mainstream financial advice” but in many cases was more about product sales than financial planning.

As we enter 2014 and a new year begins you may have to make some hard decisions around the lack of interest being shown or paid by your own bank on your savings. It could be a change of strategy is needed and a meeting with an Independent Financial Adviser will provide a host of other options for you to consider because it is very unlikely simply sitting on cash over the next few years will see a profit in real terms when we build in taxation and inflations.

We would always recommend you keep a reasonable amount of money in an accessible bank account to meet short term needs and emergencies but building a financial strategy relevant to your own needs and paying due consideration to the four key areas of tax, risk, flexibility and cost will certainly provide you with something more to think about instead of just accepting that bank deposit accounts and the low interest rates available are your only option.

So make one more resolution and go get your savings options checked out - before it costs you any more than it already has! 

Authorised and regulated by the Financial Conduct Authority.

The value of investments can fall as well as rise. You may not get back what you invest.

Duncan Mellis, Financial Adviser


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