As the Bank of England base rate remains at a historical low for the UK, there has been a gradual increase in deposit rates since the start of the year. We have seen a shift in life since the start of 2020 and have seen favourable changes in behaviour and attitudes around cash.
Savers have squirrelled away almost £200bn since the pandemic hit according to the latest BoE figures. Savers currently have approximately £1.7tn stashed away in bank accounts, fuelled by record levels of savings over the past year.
However, clients' cash holdings have historically been overlooked as an asset class and are generally lower down the priority list, especially now as interest rates remain at record lows and inflation is on the rise. This may be due to client inertia, the paperwork involved in opening accounts and the manual process of managing the accounts on an ongoing basis or other areas of financial planning taking priority. It could also be because clients’ were not saving en masse in the way we have seen happen recently.
With NS&I cutting rates towards the end of last year and historically low interest rates, finding decent returns for clients' cash deposits had been very challenging.
At the start of the year the top one-year fixed rate was 0.6 per cent and now we are seeing the top one-year fixed rate at 1.05 per cent. We are also seeing savings rate increases coming in thick and fast with a little over 300 rate increases in the month of July, according to Savings Champion.
The elephant in the room for savers is inflation. The consumer price index measure of inflation had increased in the 12 months to June 2021 by 2.5 per cent, according to the Office for National Statistics, which is faster than expected. Unfortunately inflation is rising quicker than savings rates. However, there is still demand and a need for savings rates due to short and long-term cash requirements and safety.
Cash management platforms – how do they work?
Cash management platforms carry many benefits. For clients with significant cash deposits with one bank, there has always been potential for exposure to unnecessary risk if a bank were to go into administration and also an increased potential to miss out on an opportunity to earn more interest by not shopping around.
Clients may not have the time nor energy to do so and may not even realise that they are not making the most out of their cash, thinking they are benefiting from the best rate available. Cash management platforms have been created to take away the laborious process of completing multiple bank application forms to be able to move cash deposits at the click of a button, mitigate risk for the client and have a holistic view of some of the best rates on the market.
This can be a great solution for individuals and businesses but especially for advisers who work with attorneys for power of attorney, court-appointed deputy and trust clients.
In these cases the attorney will generally insist that the beneficiary's funds are fully protected by the Financial Services Compensation Scheme, generally capped at £85,000 for individuals.