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.
Shop around
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.
However, making use of cash management platforms such as Flagstone will help make the process a lot more efficient and easier.
With several banks and accounts available, you can easily identify appropriate rates and transfer or move money at ease.
The rates available easily beat NS&I’s new rates, and you can hold up to £2m in separate accounts to keep clients within the £85,000 limit for FSCS protection.
Reassess your client’s circumstances
Moments like this are a fantastic opportunity to reassess the circumstances of your client and work out if cash holdings are still appropriate and at the same level.
It may be that they were relying on the income for a particular purpose or that they no longer actually need such large cash holdings. Regardless, given the significance of the cuts it is a good touch point to check in and help reassure them that their financial plan remains on track despite this news.
Don’t let the scammers win
Unfortunately, scammers thrive in situations like this. As returns, even on cash, become harder to attain, these scammers look to dupe people with attractive rates of returns on investments or savings that are either high risk or simply do no exist.
It is up to us as financial planners to ensure our clients remain as educated as they can be on these risks and remind them that if something is too good to be true it very likely is a scam.
Rosie Hooper is a chartered financial planner at Quilter Private Client Advisers
