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Back at the end of March, National Savings and Investments announced that they would be slashing the interest rates on 5 of its core products and reducing the number of Premium Bond prizes available. Sadly, this month (June 2016) will see those changes come into force, negatively affecting the rates of their Direct ISA, Direct Saver, Income Bonds and the Investment Account.
I don’t want to delve too deeply into the political overtone that hangs over this news. NS&I is of course a state-owned investment organisation, so will always be faced with HM Treasury targets and pressures- it’s the nature of the beast. However I do want to use this news to draw your attention to the topic of cash and how yours is at risk of being eroded away into oblivion.
Jane Platt, Chief Executive of National Savings and Investments, inadvertently hit the nail on the head when she stated “it is always a difficult decision to reduce rates, but downward movements in interest rates across the cash savings market mean that our rates have risen in the competitor tables.” Her statement eluded to the fact that despite being cut, the new NS&I rates would still offer “positive value” and that most of the newly ‘trimmed down’ rates will still be above market value.
In other words, if you have any affected NS&I products they may offer poor returns, but no worse than any other cash rates on the market. To put it into context, the new NS&I Direct ISA will now provide a whopping (note the sarcasm) 1.00% tax-free AER. Bear in mind that the rate of inflation is currently on the rise (sat at 0.5% at present, but slowly on the up) and you can clearly see that 1.00% is not going to beat inflation for very long.
Whilst there will always be a need to keep some money in cash (we normally recommend roughly 3 months expenditure) pilling your pennies into cash whilst inflation is on the up is generally not a good idea. I’d also like to remind you that there is no such thing as ‘no risk’. Cash is risky, as rates are low and inflation is creeping up, which will eventually reduce the value of you money.
On the whole, we would recommend opting for a diverse strategy to boost, or even just sustain, your finances, which integrates a blend of tax-efficient investment vehicles. This type of strategy will be tailored to your unique appetite for risk, meaning that you never invest in something you feel uncomfortable with. We would also recommend that you review your financial choices frequently, to ensure that they are performing in line with your goals and that rates and charges are not destroying your wealth.
If you have been effected by the NS&I news, or would like to review your current cash-based savings, please do let us know as we would love to help.
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