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As a Financial Adviser, we would always recommend for people to have some form of savings and this can be for any number of reasons from unanticipated costs to emergencies.  In recent times it has become less fashionable to save as credit has been cheap and easier than ever to obtain which means saving for unexpected costs has become less important.  However, credit has been incredibly cheap for an unprecedented period of time and this is now changing.

With interest rates rising over the last six months there is no doubt that the cost of short and long term borrowing will cost more and this brings more focus on the importance of having savings to avoid having to take on debt when the interest rates have risen.

What should I save into?

Firstly, planned expenditure and an emergency fund should normally be held in cash savings accounts and be easily accessible in case they are needed.  Interest rates have increased recently to make cash savings accounts more rewarding than in the past, but you are still going to lose out to inflation, especially at the moment.  Alternatively, there are options such as Premium Bonds as a means of saving into a deposit style asset and you never know, you might be lucky with a big win!

For longer term savings the options are little broader and this can bring in term deposits, this is where the cash is tied up for a period of time or notice accounts.  As a guide, in January 2022 a typical 1 year fixed rate account would have given an interest rate of around 1.4% whereas now it is possible to get close to 2.5%.

Another option is to consider investing within stocks & shares and this should only really be an option for capital that can be allocated for five years or more.  Over the longer term, investments are expected to outperform cash and with inflation affecting the future buying power of capital, investments are regularly seen as a means of trying to combat this danger and grow balances more so than deposit accounts.  The main disadvantage is that investments are not that predictable and it is normal to see stock markets rise and fall which means investments will also rise and fall in value.

It is not right for everyone, given the risk to capital and it is possible to gauge the level of risk depending on an individual’s preferences.  This means for an amount of capital that can be truly allocated for a longer term it can give an option to compliment the deposit-based element of savings which is not exposed to stock market risk.

If you would like to learn more about your savings and investments, please contact us to speak to one of our expert Financial Services team or visit us in on of our offices in Dalston, Dumfries, Penrith, or Workington.