Interesting Times

You could be forgiven for thinking that putting your cash under a mattress is not that different from trusting it to a bank! Certainly you will be lucky to earn anything on your cash in a bank. But you will be safer in a bank. No individuals have lost out from the UK banks that fell victim to the credit crunch. Statutory protection has been increased to £50,000 (£100,000 for joint accounts), but normal practice is for depositors to be rescued – for example, savers with Bradford and Bingley were switched to Abbey (part of the large Banco Santander group).

Interest rates continue to fall. Many rates have already plunged to rock bottom for savers. Current accounts sometimes pay interest but those deals are hardly worth having now. Expect banks to look for more ways to charge for ordinary banking. It rarely pays to stay loyal to your bank; so shop around for the best deals available.

The recession is the reason for low interest rates. Low rates help those with mortgages and discourage us all from hoarding cash. To the extent that we spend, we help business.

You might even want to pick up a property whilst they are cheap, but you will need a good deposit (20%+)for starters. There is now a huge reluctance for the banks to lend unless they are safe from a fall in values, and they can see that you have the income to service the loan comfortably.

Other investments may have more appeal whilst the return on cash is so low. It is a good idea to spread your investments, and there are various ways of achieving this – even if you only have a small lump sum. Our with-profits fund is amongst these and has about 40% of its assets in government bonds, 40% in equity funds and the rest mainly in investment-grade corporate bonds and commercial property.

Our ISAs are intended for the longer term investor – but they are flexible and can be cashed in at any time. If you are prepared to risk the markets, our ISA could help you build up the deposit on a house!