For the best part of a decade, savers have had to endure cripplingly low rates of return on their cash as a result of the response to the financial crisis of 2008-9.
Following devastating cuts by NS&I, what can advisers do to maximise client cash?
People had become all too familiar with interest rates failing to keep up with the cost of living but still did all they could to maximise their savings.
Entering 2020 it appeared we were on the cusp of seeing a growth in interest rates once again as global economic issues subsided and political worries calmed.
However, the Covid-19 pandemic swiftly delivered a hammer blow to this notion and has caused a fresh period of lower interest rates for longer. All of this has culminated in National Savings & Investments recently taking drastic action and implement significant cuts to their returns.
NS&I has been a great home for savers looking to diversify their investments. While it can be deployed quickly, cash sat on investment platforms is doing very little for clients and in times like these we need to make their money work as hard as it can.
However, there is no understating how big these cuts are. Having been set a target of funds to raise by the government, the state-backed savings provider now finds itself in a position of trying to disincentivise customers from saving money with them.
NS&I’s Junior Isa interest rate has been more than halved from 3.25% to 1.5%, while its income bonds have fallen by 115bps to 0.01%.
Not even the ever-popular Premium Bonds were immune, with your chance of scoring one of the prizes falling from one in 24,500 to one in 34,500.
But what does it mean for clients looking for a safe space for their cash? These are five things we can take away from the recent news to assist our clients in their financial journeys:
Don’t dismiss NS&I immediately
Yes, the cuts are brutal and drop NS&I from top of some of the best buy lists down to the bottom, but these changes do not come into effect until November.
Clients may have fixed-rate deals that expire before then and can be locked in for another 12 months at the higher interest rate, so it is important not to just dismiss NS&I immediately.
As with all their financial products clients expect us to assess what is available to us and make the most appropriate recommendation as a result.
This will be no different and if cash accounts are needed, and NS&I no longer remains a viable option, do not be afraid to move your client and their assets to a new provider.
Not only will they benefit, but it will help give you a proof point as to the value you are adding by always looking out for their interests.
Utilise cash management platforms
Of course, in the current situation advisers and their support staff are suffering from capacity issues, so the above may feel like a lot of effort when the interest rates are so paltry.