Savers need to take interest in their cash
IT IS likely that interest rates will start to rise next year, and while this is bad news for borrowers it should help savers although Aegon is warning savers with large amounts of money sitting in cash not to be lulled into a false sense of security Steven Cameron, Pensions Director at Aegon explained: “As the economy continues to recover post lockdown, we are seeing a sharp rise in the cost of living. Inflation is currently sitting at over four per cent and forecasts suggest it could remain around this level or higher in the coming year, peaking close to five per cent in the spring.” During a period of high inflation people will notice a dramatic decrease in their purchasing power over time, particularly if their wages don’t keep pace or if they have savings in cash. The Bank of England may respond by hiking the base rate in the coming months, but even if passed on to savings accounts, any increase is likely to be small. Savers hoping for a boost to their cash savings should not be lulled into a false sense of security if interest rates, currently just scraping above zero, rise a little. Cameron reckons that savers may need to think about other options for their savings, but that any such solutions need to be careful regulated. “The lurking threat of inflation next year and beyond could far outweigh any small changes in interest rates for those with large amounts of money in cash savings. Following many years of low inflation, people may have forgotten how damaging high inflation can be.
“But in the coming months and years savers should think carefully about where they put any additional cash that is not needed in the short term. The financial regulator, the FCA, has said it wants to explore new ways of supporting some of the 8.6 million people with more than £10,000 of investable assets in cash to consider moving some of this into investments to make their money work harder. Money in investments can benefit from growth which can outstrip the rising prices of goods and services, although this is by no means guaranteed.”