Cash Savings - Poor Returns - Try to make more

With interest rates being so low and inflation so high. How can you try to make your cash work for you?

Research from Investec in February found that the average rate offered by the big banks was 0.02%, just £20 for every £100,000 held, with some of the highest rates offered only 0.67% or £670 for every £100,000. With inflation recently jumping up to 9%, which equates to £9,000 for every £100,000 held, this means any money held in cash at these rates is guaranteed to significantly loose value.

What is inflation?

Inflation is a measure of the costs of goods and services. For example, the cost of a pint of milk or loaf of bread 50 years ago was significantly lower than today. This is largely due to the impact of inflation; goods and services typically increase in cost over time. In a thriving economy inflation can reach high levels, which isn’t necessarily a bad thing, however when the economy is struggling, high inflation can create serious problems, as money held in cash buys you less over time, eroding the value, leaving you with less money and more expensive bills.

Today inflation is at 9%, so £100,000 held in cash will loose £9,000 in value per annum, which over 7 years would almost half the ‘real’ value to £51,676, and further reduce to £38,941 over 10 years.

What can you do?

Some of MLP’s investments have made over 100% over the past 10 years*. Meaning if you had invested £100,000 10 years ago you would now hold over £200,000, far above inflation. Whilst at the current savings rate of 0.02% you would only have made c. £200 over 10 years, far below inflation; meaning your cash would be worth less.

Its important to ensure you have a tax efficient investment (as this can also erode any gains), that is suitable for your risk level. Whilst it is likely you will need to hold some money in cash, ensuring you have a planned, sensible amount with a financial planner is important to try to help your money work for you. For more information, please contact us for a free conversation.

*The example above is for indicative purposes for a typical client investing in a high risk actively managed portfolio up to 31/05/22. A similar medium risk portfolio would have made c. 46%-63% over 10 years. Historical performance is not guaranteed in the future and any investments could end up being worth less. Please note this article is not providing advice, should you need help, please seek the help of a qualified financial planner.