Why finding a better deal for your money may become a lot more straightforward
Thursday 16 Jan 2020 Author: Daniel Coatsworth

Proposals from the Financial Conduct Authority (FCA), a regulator, to simplify the easy access cash savings market are important on many levels.

The need to find the best deal on cash is often forgotten by investors, despite many people putting so much work into researching the best stock, fund or bond opportunities. It is just as important to get the best returns from cash as it is from other assets.

Cash should be a major part of your wealth strategy. Even though investments may dominate ISAs and SIPPs, particularly for people not yet in retirement, cash is still a major part of the wealth puzzle in that you need it for emergencies and also to take advantage of opportunities in the market.

You shouldn’t let cash sit in accounts paying a pittance, particularly as inflation can eat away at your real returns. That means looking around for the best deals which could become a lot easier in the future if the FCA’s proposal is actioned.

The FCA has proposed that banks and building societies have a single rate for easy access cash savings accounts after an initial 12-month period. It means that long-standing customers will have the same rate as those coming off an introductory rate. In essence, it will mean that savings providers won’t be able to gradually reduce interest rates over time.

This should make it easier for savers to compare their current deal with the rest of the market.

Ahead of an update from the FCA later this year it is worth pointing out some developments in the market which involve financial services companies offering cash switching accounts.

For example, asset manager Octopus has a service whereby you deposit cash and it will find some of the best savings rates on the market. At the end of the savings term you’ll automatically be offered its best available rate from a range of partners. We expect more companies to launch similar services in 2020.

At the time of writing the pound had started to fall in value as the market weighs up the prospect of the Bank of England potentially cutting interest rates to help stimulate the UK economy. Such action makes it even more important to shop around now to find the best possible deal for your cash before savings rates are cut further to
the bone.

Higher rates can be found if you’re happy to lock up your cash for longer periods. Just remember that a wise wealth strategy involves keeping some cash ready for immediate access to deal with emergencies like a broken boiler, so don’t put everything in a one-year or longer fixed-term savings account when the cash cannot be accessed before the end of the term.

As for anyone investing in the banking sector, it doesn’t seem like you need to be too worried about the FCA’s proposal creating substantial extra costs for the industry. Broker Shore Capital believes the impact will be ‘relatively small’ in the context of banks’ revenue bases and therefore it is a marginal rather than a material headwind.

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