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How to stockpile your cash

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18/03/2020
With interest rates back to record low levels and the stock market in freefall, your money is facing a battering from all fronts. Here’s how to protect and stockpile your cash.

The Bank of England last week announced an emergency interest rate cut to support the economy in the wake of coronavirus, taking the base rate from 0.75% to 0.25%.

For savers, this is another blow for their cash as providers were already cutting market-leading rates even before the base rate cut.

A £100bn Term Funding Scheme was also announced to encourage banks to lend to businesses. With more cheap money from the government, this means banks will be less inclined to offer attractive rates to gain, or keep customers.

Global markets have also plummeted, with the FTSE 100 suffering its worst day last week since 1987’s Black Monday, diving almost 11% and wiping £160bn off the value of the index. Everyday, investors are becoming used to seeing losses of 5%+ on the FTSE 100.

So where now for cash savers?

Fixed rates may be a better option for savers to weather the storm, but many of the top rates have already been pulled from the market so savers will be starting from a lower level, according to Susan Hannums, co-founder at Savings Champion.

“That said, locking in for a year or two may not be the worst idea as variable rates will undoubtedly be sliced to very low levels and the Bank of England has already indicated that it will cut rates further if needed to stabilise the economy.”

However, given the current unprecedented situation with the coronavirus, savers are advised to keep some money in more accessible accounts “as it’s best practice to ensure we all have a rainy day fund for times of uncertainty, change or emergency”, Hannums said.

While there aren’t any hard or fast rules on how much this should be, she suggests six month’s income is a sensible start to hold in your rainy day fund.

Hannums said: “These uncertain times only go to highlight the importance of cash and having some available to fall back on should you need it. That’s not to say people should put all their money into cash but rather to ensure they have some money should they need it.”

For money in accessible cash savings accounts, it makes sense to get the very best returns you can.

“For those who need to keep more money in cash, for example those who in later life want to reduce their risk and protect what they have, it is even more important that the returns they are getting are the best rates they can get, as the damaging effect of inflation will see this money eaten away over time, in real terms” she added.

Even if savers can’t find an account that beats inflation, choosing the best account can help mitigate the effect.

She gives this example: “If you leave your funds languishing in an easy access account paying 0.10%, although a deposit of £50,000 would grow to £50,251 over five years, it would have fallen to just £45,962 in real terms, assuming an inflation rate of 1.8%.

“If you were to choose the best easy access account available today, paying 1.31% AER, while the real value of your money would still be lower, it would be worth £2,846 more, at £48,808.

“Better still if you choose the best five-year rate available today paying 2.25% (Wesleyan Bank with a minimum £50k), it would have grown to £55,204 in actual value but more importantly, it would be worth more in real terms – £50,493,” she said.

Top rates for your cash

The table below shows the average interest rate being paid in each of the last three months. The statistics reveal rates have been falling across the board.

Today the top-paying easy access account is from Cynergy Bank – 1.31%. It includes a 0.56% bonus for the first 12 months with interest being paid annually. Virgin Money also pays 1.31% but it allows a maximum of two easy access withdrawals per year.

SmartSave pays 1.56% on its one-year bond though savers need to deposit a minimum of £10,000. Otherwise for slightly less, Shawbrook Bank pays 1.55% on a minimum £1,000.

RCI Bank pays 1.65% on its two-year fixed bond (minimum £1,000) while in the three-year category, Investec offers 1.80% on a minimum £25,000. If you have less to save, RCI Bank pays 1.75% on a minimum £1,000 holding.

The best four-year fix comes from RCI Bank (1.80%) on a minimum £1,000 and again it leads the table in the five-year category at 1.90%.

On cash ISA’s, Savings Champion data reveals Sharia bank Al Rayan has an expected profit rate of 1.36% on its instant access cash ISA (min £50). The top fixed rate ISA is from Virgin Money, paying 1.36% on £1+.

On notice accounts, Shawbrook Bank pays 1.55% on its 120 day notice account for balances of £1,000+.

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