Are you keeping too much money in cash savings?
Keeping all of your money in cash savings accounts can often seem like the most sensible and safest option.
You’re avoiding the potential risks of investing in the stock market, and you have the peace of mind that up to £85,000 of your savings are protected by the Financial Services Compensation Scheme.
But sometimes, you miss out on the opportunity to grow your money by keeping it in cash, particularly if the interest rate doesn’t keep up with inflation; savers in National Savings and Investments (NS&I) accounts will be acutely aware of this, after it announced interest rate cuts in February.
Whether or not you’ve seen the interest rate reduced on your savings, now could be a good time to reconsider where to keep your money.
Cash isn’t risk free
Before you make a decision about where best to put your savings, you need to consider what you’re trying to achieve with it, and on what timescale.
If you’re planning to put money aside for a long period of time – particularly upwards of ten years – then it might be better to invest, as the stock market has done better than cash over the long-term.
If you’re new to investing and this sounds daunting, then you can take steps to lower the level of risk. For a start, by drip-feeding regular amounts on a monthly basis, rather than investing a lump sum, any worry about timing the market and the impact of short-term market movements on your portfolio is reduced. Also, by investing in a broad mix of investments across different markets, if the price of one investment falls, it may have less of an overall impact on your portfolio.
If you’re in any doubt as to whether investing in the stock market is right for you, and how to get started, then talk to a an NFU Mutual financial adviser.
Keep some cash
Taking some money out of your cash savings doesn’t mean abandoning them entirely. Cash should always play an important part in your financial planning, especially for money that you may need in the near future.
If you do have short term goals, of less than five years for example, then cash savings may be more suitable than investing in the stock market, which can go up and down in the short-term, leading to potential losses.
It’s always worth remembering the importance of having a financial cushion for an emergency, such as losing your job. A good rule of thumb is to keep enough cash available in an instant access savings account to cover three to six months’ worth of essential outgoings, such as food and living costs.