Well, That Went Swimmingly
Neither Liz Truss nor Kwasi Kwarteng can’t say I didn’t try.
When I gave my views on the September 23rd mini-budget in my last newsletter, I did my utmost to find the upsides, to burrow under the headlines, see what they were thinking and find the advantages for my clients.
Well, that fell apart like a cheap suit, didn’t it?
Was I wrong? Maybe. But I broadly stand by what I said. In less febrile times, their audacious agenda might have worked. But don’t forget the thing that killed their plans wasn’t necessarily the entirety of the content. Instead, it was the inept, arrogant way they planned, communicated and implemented their radical fiscal agenda.
Failing to involve the Cabinet, OBR, IFS, the Bank of England or the mandarins of the currency and bond markets made them the architects of their own doom.
And now both have been deposited in the dustbin of history. They have the dubious honour of being some of the shortest holders of the highest offices of the state.
But, like I said, I did my best!
Sorting Through The Wreckage
So now we have Rishi as PM. A safe pair of hands, or so it’s assumed. A competent former banker who knows his fiscal onions. He’ll try to hearten the markets as he salts the economic wounds left by the previous government. It’ll be painful but necessary and the polar opposite of what Truss and Kwarteng had in mind.
So strap in, everyone; it’ll be a bumpy ride.
I was thinking: can we find something in the smoking economic rubble to lift our spirits? Well, maybe there is a modest sliver of light, at least for some of us. After many moribund years, it’s worth looking at saving accounts again.
Since the 2008 financial crash and the historically low interest rates that came in its wake, savings accounts and their ilk have offered laughably low returns. Over the last decade, you were lucky to find rates over 1%, and only if you could lock your money away until the next ice age; in short, they were not worth the effort or sacrifice to personal liquidity.
That has changed dramatically.
The economically savvy will know the flip side of high inflation is increased interest rates as the BOE pulls its monetary levers to try and get higher prices under control. These rises bleed through to the retail banking sector, and now we can see the opportunities.
I’ve quickly looked at what’s available, and there are some genuinely motivating opportunities. For example, according to data firm Moneyfacts, the average easy-access account now pays 1.11%, compared with 0.19% a year ago, and the average five-year fixed rate is 3.86%, up from 1.26%.
To Fix Or Not To Fix
This is a crucial dilemma for those with little dosh to salt away. Savings accounts come in two broad flavours. First, there are Instant Access accounts where you can get your money back anytime. Or Fixed Rate accounts (from 1 to 5 years) where early withdrawal brings interest rate penalties.
Naturally, the best returns come from those products where you lock your money away. Depending on your cash position, it makes sense to take advantage of this situation if you can. It may not be everything, but it’ll help offset inflationary pressures from increased energy prices and mortgage payments.
Challenging Rates
Some of the most lucrative offers come via app-based challenger banks, who are taking advantage of their low-cost base to give some tasty returns.
Let’s look at some of the best of this crop of new players.
Atom Bank
This British bank, founded in 2014, has products in both the instant saver and fixed categories. For instant access, they currently offer 1.90% AER (1.88% gross) on up to £100,000, meaning you’ll get around £1890 in interest annually if you choose to take a 5-year Fixed Rate Saver account that makes 4.65% AER (4.55% gross) giving around £25,000 in credit interest once the account matures. So overall, I would venture this is an appetising option.
Chase Bank
This subsidiary of an established American bank is a relative newcomer to the UK market. They offer a simple, instant access savings account that gives 2.1% AER (2.08% gross) variable interest, calculated daily and paid monthly. Every £1000 that stays in the account for a whole year earns £21 in interest. In addition, the account offers additional benefits such as cashback and fee-free overseas spending. Worth considering for those that might need their money quickly.
Marcus
This is another relatively new online account allied with the US investment bank Goldman Sachs. They offer two basic saving products. First, an instant access account paying 2.00% AER (1.99% gross) in annual interest (note this includes a year one 0.25% bonus). Their 1-year fixed rate saver pays 2.70% AER/gross (fixed). Not too shabby, and as a financial behemoth backs it, it should be a safe bet.
Monzo
Monzo uses a different model based on a savings marketplace with other FCA-accredited providers. Depending on whether you need instant access or can fix your money, the rates range from 1.50 AER (instant access with Oaknorth Bank) to 4.3% AER (1-year fixed with Charter Savings Bank). An exciting hybrid, but it may be a little complex for those who aren’t as tech-savvy.
Safe Harbour?
All the above are app-based accounts allowing flexibility in managing and moving your money between different pots. Better still, all are FCA-registered firms meaning your cash up to £85,000 per account holder is guaranteed by the Financial Services Compensation Scheme (FSCS) If you’re looking at other lower-profile challenger banks, you can check the FS Register to see if you’re fully covered.
Just remember, interest rates are very volatile at the moment, and you may see changes in product rates each time the BOE rate changes. So make sure you check T&Cs carefully.
And don’t forget bank interest is taxable after the first £1000 for lower rate taxpayers and £500 for those earning at the 40%+ tax threshold.
Overall, we can agree that the rates on offer are a world away from what we’ve seen over recent years. So all the above and other more traditional banks could be a welcome ‘safe harbour’ for those who want to get their money working as hard as possible without exposing it to the roller coaster vagaries of the stock and bond markets. As we have seen, that might be a tad too stressful at the moment.
What About Businesses?
It won’t have escaped your notice all the above are personal accounts, but what about businesses? There are savings accounts specifically for companies that may be useful for some organisations. However, as a finance professional, I would advise a careful review of other ways to deal with surplus cash in business accounts.
Areas like re-investing in the business, paying down debt, rebuilding balance sheets or enhancing dividend payments may be more important aspects to consider. In addition, deposit savings require medium-term stability, so the returns may be patchy in companies with seasonal cashflows or strongly aligned with prevailing economic conditions.
If your business is in the happy position of having a cash surplus, maybe it’s time to book a review with the Enso team. Together we’ll look at the options you have to convert a lovely nest egg into a potential shedload.
OK, that’s it for this month. Let’s hope for less turbulent times from now on. Time will tell on that, as we have dramatically seen, of late.
Call my team today on 0161 511 2143 or email me at adam@meetenso.co.ukif you need future-focussed accountancy support or want to discuss your business’ approach to saving or investing.