How to build a balanced savings portfolio
Volatility in the stock markets may have many looking to cash for the security and peace of mind that only cash-based savings accounts offer. Yes interest rates are low but with some work and balancing your portfolio between a mix of high interest paying current accounts and fixed rates bonds, 3% or more can easily be achieved. For example up to £20,000 can be deposited with the Santander 123 account paying 3% AER. 3% or more in the current low rate environment is not to be sniffed at. As well as the rate being guaranteed for fixed rate bonds, your money is protected up to £85,000 per person (changing to £75,000 from 1 January 2016) which are benefits that many alternatives to cash savings simply don’t offer.
We’re often speaking to savers who are waiting it out in variable rate or short term fixes for the next move in the Bank of England base rate. But, as we say to our clients that use our Concierge Service, the next rise has been an ever-moving goalpost that few seem to be able to correctly predict, so you may be missing out on valuable interest in the meantime. As one saver recently commented “constant speculation on rate rises means I’ve missed out on over 3% rates, while I’m waiting for a rate rise that still hasn’t happened".
Our average client receives an additional £4,198 gross pa, which means that for every week they delayed action it cost them just over £80. Call us now on 0800 321 3581 to find out if we can help.
Although signs point to a rate rise next year, market turmoil could quickly put paid to that if things don’t turn around quickly. So what should you do?
We have long taken the approach that with many savings accounts at record interest rate low levels, savers with reasonable sums should take a balanced approach. This means spreading your money between a range of products to access the very best rates now, with some money held in accessible variable rates and short term fixes, so should rates improve, you’re ready to react and take advantage.
How does this work? It’s simply splitting money between the very best variable rates, in many cases high interest paying current accounts and notice accounts, with the rest divided between short and long term fixed rate bonds. This way at least a percentage of your money is getting 3% or more and the rest is receiving a competitive return and you’re able to react when better rates become available.
We believe this in the only way to save in the current climate and we totally understand why some sceptical savers may think locking your money away for the long term in the current climate seems, well, bonkers….but those savers who felt the same five years ago, with base rate at record low levels, have missed out. Although it’s easy to say these things with hindsight, being balanced means not all your eggs are in one basket, so you’ll be able to get the best of both worlds. Call us on 0800 3213581 to discuss this and how it might benefit you.
The Governor of the Bank of England, Mark Carney, has given the strongest indication yet of an impending rise in the base rate, however the expected rise has been on the cards for some time, yet here we are still at a historic low level of 0.50%. What we do know is that Mark Carney has stated that when rates do eventually start to rise it will be limited and gradual. Therefore any savers sitting it out in traditional variable rate savings accounts could be waiting some time for a substantial rise in rates. Worse still is that the link between base rate and savings rates have long since been severed, as thousands of existing savings rates have been cut in recent years, with no movement in the base rate for over 6 years. The concern is still that when rates do eventually rise, we can’t assume that all savers will reap the same reward and see their savings rates move in line.
Splitting your money by looking at different terms can mean that some of your funds can be reviewed and moved at different times, to take into account the market conditions at the time. It seems wise to hedge your bets on interest rates, whilst accessing some of the best rates now. High interest paying current accounts are now being used as pseudo savings accounts, as they offer some of the best rates for savers, albeit it on smaller balances.
And savers shouldn’t forget about their cash ISA allowance, even with the impending Personal Savings Allowance due to come in next year, as any money held in the account will remain tax free for the life of the account. If and when interest rates rise in the future, many will be glad that they have sheltered more of their savings from the taxman.
If you wish to speak to one of our advisers for a complimentary review of your savings, including seeing if a balanced savings portfolio might work for you, please feel free to call us on 0800 321 3581 or email [email protected]. We want to help all savers maximise their interest and ensure their money is protected.
In the meantime, here are some examples of how a balanced portfolio can work including the rolling fixed rate bonds method.
If £50,000 was left in the best easy access account currently available, the gross interest per annum would be £825 gross (1.65% gross).
The interest amounts above are for illustrative purposes only and assume that the interest rate (which is before tax is deducted) and the deposit amounts remain the same for 12 months.