Now the big coronation is over it’s worth bearing in mind there’s been a new king in town for quite some time.
The old adage “cash is king” was only quietly whispered in the years following the global financial crisis of 2008, given cash savings provided little in the way of financial reward.
Interest rates were little to get excited about, with a fraction of a percent the norm for many years, particularly in the early stages of the coronavirus pandemic.
All change
However, with society’s emergence from lockdown compounded by Russia’s invasion of neighbouring Ukraine, the balance has shifted.
To combat runaway inflation, central banks have raised interest rates in an attempt “cool” the economy – this is good news for cash savers, less so for borrowers.
The Bank of England’s rising base rate of interest filters through to the rates offered by financial institutions to their customers,
Cash is certainly a more attractive option now than it was before 2022.
And it’s the first time in my career that clients are earning interest to the extent it becomes a tax liability.
But is cash merely a pretender to the throne? Although cash rates are higher, they still lag behind rampant inflation, meaning the “real” return is, in fact, negative.
The rising cost of living continues to erode the value of cash deposits, despite a big improvement in the rates of interest on offer.
Cash may seem unattractive in that context, but when held for planned short-term spending or as an emergency reserve it certainly does have a strong claim to the crown.
It’s the first time in my career that clients are earning interest to the extent it becomes a tax liability.”
For these purposes, it’s important to have funds that won’t be subject the ups and downs of higher risk/return investments like the stock market.
Once cash has been allocated for a “rainy day” fund and upcoming spending plans, savvy savers should make sure they are benefitting from the higher rates of interest available.
For the first time in a long time, it’s worth shopping around banks and building societies to get the best rates on offer.
Having established a cash reserve, investors with a longer-term view should look to a more diversified mix of assets that have historically provided positive “real” returns.
Investments tending to offer a return in excess of inflation over time include stocks and shares, bonds and property – a royal flush, if you will.
Liam Kerr is one of the expert team at Carbon Financial Partners in Aberdeen.
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