Can you afford to keep your savings in cash?
We may be a month into the New Year but, for me, it still feels fresh and new. 2018 is a blank canvas ready to be filled with new experiences, memories and adventures. Plus, four weeks in, most people are still sticking to their New Year’s resolutions, whether they involve letting go of old habits, embracing a ‘new me’, a ‘new hobby’ or reassessing their attitude to life and relationships. I’m no exception, and as 2018 continues the pattern of depressingly low interest rates on savings accounts and tax-free cash ISAs, I’ve decided it’s time for me to reassess my attitude to saving and investing. It’s time to explore both sides of the ‘coin’ and consider whether cash savings will be enough to support our family for those crucial life moments that lie ahead.
With both of our girls hurtling towards milestones like driving lessons, higher education (and, dare I say, weddings), we need to plan ahead if we want to make the most of our savings and investments.
Last year I admitted to being a bit of a ‘safety girl’ when it came to money, with a natural tendency towards cash savings as opposed to higher risk investments. Perhaps it has something to do with my pharmacy background where risk management was the order of the day and the merits of every decision, policy and action were measured in terms of risks and benefits.
However, with some banks and building societies continuing to offer pitiful interest rates, despite a rise in the base rate from 0.25% to 0.5% last November, could it be time to ditch cash savings in favour of longer-term investment options, with the potential for greater returns?
Changing the way we think about savings.
We already have some of our savings invested in stocks and shares ISAs and they’ve performed well over the last 10 years. However, letting go of our natural preference for cash savings hasn’t been easy. I don’t think we’re alone, either. Before the government introduced ISAs back in 1999, entitling everyone in the UK to tax-free savings and investments up to a specified allowance, (the current ISA limit for 2018/19 is £20,000), most of us put our money in the bank, as did our parents and their parents before them. This wasn’t a bad idea when interest rates were higher. However, the financial landscape has changed, and poor interest rates mean cash is no longer ‘king’. Consequently, more and more people (myself included) are looking for alternative investment products, with the potential to offer a better return on investments in the long-term*.
Why do Brits love keeping money in cash?
- For many Brits, the balance of your savings account is an indication of your wealth. As a nation, we seem to love keeping our money in cash (source). But is keeping the bulk of your money in a savings account, or stashed in a piggy bank still the safest option?
- Cash savings often seem safer to people. You see it in your bank account, and you know it’ll stay there. According to research by UBS SmartWealth, even those with as much as £50,000 to manage are twice as likely to hold cash ISAs as they are stocks and shares ISAs*.
- Investing in non-cash assets, such as equities or bonds, can feel a bit alien. It’s also hard to find the right advice, or even basic reliable information about your options.
- When it comes to non-cash assets, Brits aren’t sure how to make the right decision, or what may happen to their money.
Why should people consider investing in non-cash assets like stocks & shares?
- Assets such as equities and bonds have a proven track record of consistently beating cash for returns (source)
- Money you put aside each month will start to earn its own returns
- Interest rates for Cash ISAs, which used to be the first port of call for savers, are languishing below 2% AER.
- Even the biggest lovers of cash and ‘risk averse’ savers should think long and hard whether this strategy is the best one in the long-run.
- The Governor of the Bank of England, Mark Carney, famously said in 2014 that interest rates of around 2.5% should be considered the ‘new normal’ (source). If he’s right, then it will be many years before bank accounts start to deliver the kind of meaningful returns provided by other assets.
- In a low interest environment, your cash in the bank is vulnerable (source).
Do we still need cash savings?
Despite low interest rates, there are still very good reasons for keeping cash. For example, according to Money Advice Service, people should always have an emergency fund that covers all living costs for at least three months. Cash savings may be the best option for short-term expenses or if you need to access funds quickly.
Cash savings may be enough for short-term expenses. However, for long-term goals, it’s important to plan ahead. Consider what your financial targets are five, 10 or even 20 years from now, then you can put in place a strategy to meet the goals.
If you’re nervous about the idea of putting your money into non-cash assets, or you aren’t sure what investments would be right for you, UBS – the world’s biggest wealth manager (these are the guys that look after the wealth of billionaires) has a really simple online tool called UBS SmartWealth that asks you a few questions and advises you on what investments you should make. They also help you see how much you can grow your hard-earned money by over time and whether or not it’s enough to achieve the things you want to achieve in life.
Over to you.
If you have savings, do you keep your money in cash (perhaps as an ’emergency fund’) or do you have non-cash assets too, like equities and bonds? Are you planning ahead and saving for those crucial life moments or do you prefer to live in the moment and take things as they come? In this era of low-interest rates, where cash savings (even tax-free investments like ISAs) aren’t giving you a decent return on your investments, are you ready to consider alternatives? As always, I’d love to know what you think.
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* The research was carried out between UBS SmartWealth and Censuswide, an independent research company, with a research panel of 1,000 respondents between £50,000 – £250,000 investible assets.
Important Information – The price and value of your investments and income derived from them can go down as well as up. You might not get back the amount you originally invested.
This is a sponsored post. As always, the words and opinions are my own and aren’t intended to be a personal recommendation in respect of a particular investment. As with all financial products and investments, I recommend seeking independent financial advice.
Great article jane thank you
Living abroad it is important to us to have some cash saving in both countries to be able to access quickly in case of emergencies and sadly in the event of the death of my husband as I would have to leave Dubai within 30 days due to my visa and although we have wills in place it would take a while before it was sorted, I also own property in the UK solely in my name so I would not end up homeless is the case of many trailing spouses. However if something were to happen to me, my husband would carry on earning a wage and would only have to sort out my bank accounts here and in the UK and the property, but it wouldn’t impact on his financial ability to live day to day. Sounds harsh, his investments are in stocks and shares. At the end of the day it is all ours, even in the eye of the law, but we have to hold accounts separately, if that makes sense #tweenteensbeyond
Wow! I never realised that living abroad somewhere like that would lead to so many financial complications. It’s a good job you are aware of the issues. I am sure many aren’t. Thanks for your comments!
What a great little tool – I’m guessing most peoples decision to stay with cash savings is the lack of knowledge of other options so it’s nice to read of this website/tool, I shall take a look. It kinda doesn’t apply to us right now as we have an offset mortgage and the goal is to clear it in the next few years but after that this is definitely the kind of advice I need to get my hands on – great article as always, I love how you make money stuff so easy to digest.
Aw, that’s a lovely thing to say. I do like to think I can make things gargon free!
This is so useful! We have quite a bit in savings and I do just feel like they are sitting there doing nothing for us!
I have been looking for somewhere to put my savings. I clicked on the UBS Smart Wealth link and it said for UK citizens only. Do you know if it includes Jersey under that?
Hmmm. No I Don’t. I will ask that on their FB page and see what they say.
I’m really pleased that my hubby is switched on about things like this! Because of him we have our savings spilt across different stocks and shares and we’ve got an investment rental property too. Not much money in the bank though!!
Before we had kids we had a mix of cash and stocks and shares investments to spread the cost. Now we have the little we have left in the bank but I don’t think we get ANY interest!! That’s rubbish isn’t it, need to look at that!
It is rubbish, isn’t it?!
It’s something I have considered. I get hardly any interest on my savings.
Hi Emma! I’m afraid for now you’ll need to be a UK resident and UK domicile to be able to sign up. However, do keep an eye on our blog for product updates and useful investing tips: https://www.smartwealth.ubs.com/uk/en/insight/blog
I’m one of those people who like cash savings simply because I can see how much I’ve got! I find anything else confusing although I completely understand the advantages. I think you are right, we will all have to look of new ways of investing in this age of low interest rates. Thanks so much for sharing your post at #TweensTeensBeyond
You mean I need to dive under the mattress and get it all out Jane!! No, seriously – a very interesting read as I have been exploring all things pension and finance at the moment. It’s the January thing. I think we all get a bit stuck in the type of savings that we are used to and reluctant to change. But look where that got the previous generation with the endowment mortgage. This is on my list and I agree with Alex that you have made the humdrum subject of finance accessible here. Thanks for sharing with #tweensteensbeyond