Is Cash Safe?…Safe from What?

23 June, 2014 | Uncategorized

A new client came to us for investment advice recently. “How can I help you?” I asked. “It’s the return on our deposit ISAs, we want to explore alternative investments.” I discussed their options, assessed their attitude to risk and the client asked me, “Is what you are recommending safe?” I replied, “Safe from what?”. The client did not know what they were asking me. It was a knee-jerk reaction to potentially venturing into the unknown.


The Bank rate has been at an all time record low of 0.5% since 2009. Going forward, there may be an increase in late 2015. Depositors put £18.4 billion into Cash ISAs in 2012/13. In 2013/14 that figure had reduced to £11.5 billion – a drop of nearly £7 billion.


Investment ISAs have seen an increase from £809 million in 2012/13 to £2.3 billion in 2013/14, the Investment Management Association stated. The continuing eroding of value of savings has at last prompted depositors to consider becoming investors. The best Cash ISA currently offers 2.75% for a fixed five year deal. With inflation (RPI) running at 2.5% per annum, any slight increase in inflation could erode the spending power of your capital. By contrast a balanced risk investment ISA would had delivered 6% to 9% over 2013/14.


Savers have to change their approach to their savings. This is due to the world in which we live has drastically changed since the credit crunch of 2008. Savers have to focus more on timelines, ie. 5 years to perpetuity. They have to accept for their savings to grow above inflation and improve their potential spending power in retirement; volatility is here to stay. The world is a more volatile place, so hence, asset values are also.


We are comfortable with cash and property. Considering investing in equity (stocks & shares) and fixed interest bonds, with some alternative asset classes, along with cash and property, is essential to achieve above inflation returns. The other benefit of a suitable investment strategy is not having the annoying cycle of chasing ridiculous low rates from one bank or building society to another at the end of the fixed rate period.


Cash ISAs can be transferred to an investment ISA and maintain their tax free status. So, is cash safe? Safe from growth? Safe from outperforming inflation? With the March 2014 Budget increasing the ISA contribution limit to £15,000 from 1st July 2014, the time for an alternative investment strategy is now even more beneficial.


As such, the need to seek independent financial advice is more evident. Visit and seek out an adviser for a second opinion. The risk to you, the potential customer, is having to put your trust into their hands. Make sure you choose an adviser who is suitably qualified (Certified or Chartered) and ensure their charging structure for fees is transparent. If you do make this switch from cash to an investment strategy, do be patient and do not expect overnight miracles.


 By Graham Wingar

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