First, we always need to have a sufficient cash reserve to meet our immediate needs for known expenditure and for emergencies. For most of us, it is better to have this immediate cash reserve on deposit so we can sleep at night.
Most of us prefer not to have our cash reserve invested in shares as the value of our capital level will fluctuate.
Most people tend to leave that cash reserve on deposits in their banks earning practically nothing. Typically, even now with bank base rates at 2.25%, the major banks are paying rates for instant access at 0.25% or 0.4%. You may have seen the massive rise in mortgage rates recently, and this money is being lent, in many cases, over 6%.
Furthermore, we must remember that if we have more than £85,000 in a bank, the excess above £85,000 is at risk if the bank went into liquidation. Incidentally, the £85,000 applies to all banks (per banking group), building societies and their subsidiaries.
Most people hardly want to spend time spreading money amongst different banks, and on top of that, they must record the income for their tax return.
Fortunately, there are services that can do this for you, and for example, my funds on deposit are currently earning 2.2% per annum and where I can lock in money for longer I am earning even more, however, most of us are complacent and sadly throw money away here.
Of course, there are so many approved tax umbrellas offered by the Government which most people do not take advantage of. We can have cash reserves in Individual Savings Accounts, Unit Trusts, Investment Trusts, and shares, but for our immediate cash needs, we may wish to avoid the volatility of investments that fluctuate. Thankfully, a cash service makes this simple and will find you a healthy rate of interest as well.
Trevor Downing FPMI FPFS
