Do you have too much money invested in cash?

04 Feb 2015

By The Orchard Practice

Is your Cash ISA under attack from inflation?

If you started saving in a Cash ISA when they were first introduced in 1999 and continued to invest every year to date*, you could have saved over £71,000. But with the Bank of England’s Base Rate remaining at 0.5% since 2009, the spending power of these savings has effectively been diminished when you have taken inflation into account.

In fact, you would have had to earn interest of 3.9%** over the last five years for your savings to have beaten inflation. And looking at the current Cash ISA best buys, it would seem unlikely you’d achieve that from a bank or building society***.
how much can I save with a cash isa

The case against raising interest rates

While there’s talk about the prospects of an interest rate rise, Neil Woodford, Head of Investment at Woodford Investment Management, argues there’s no need for UK interest rates to rise until 2016 thanks to a number of factors****:

UK households remain burdened by too much debt (household debt-to-income ratio hit a record high of 140% in 2013)*****
Household cash flows remain very sensitive to rate rises
UK labour market dynamics have changed.With over 1 million people in part-time employment preferring a full-time job,
and many more in self employment
UK inflation remains low and appears to be heading lower

So, with interest rates at an all-time low and looking to remain so for the foreseeable future – it’s time to consider transferring your Cash ISA savings to a Stocks and Shares ISA investment and avoid the effects of inflation on your savings.

And the great news is that following the introduction of the New ISA (NISA) legislation in July 2014, you can now switch your Stocks and Shares ISA investments back to Cash ISAs if interest rates get back to a level that means your spending power won’t be eroded.

There are numerous multi-asset investments available to investors who are uncomfortable taking too much risk with their money. Many of these have delivered significantly higher returns than cash over the last five years. Get in touch to find out more.

The value of investments and the income from them can go down as well as up and you may not get back the amount originally invested.

Tax concessions are not guaranteed and may change in the future.

* As at 30 November 2014

** This Is Money – 3.9% that’s the magic number: It’s at least what savers needed for the past five years to beat inflation

***Moneysavingexpert.com Best Buy Cash ISAs on 27 November 2014

****Hargreaves Lansdown – Neil Woodford: Rate expectations

*****BBC News UK household debt hits record high

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Do you have too much money invested in cash?

Is your Cash ISA under attack from inflation?

The case against raising interest rates