Even at times of low interest rates, cash will often be an element in any portfolio, for all sorts of reasons. It may be that access may be needed in the short- to medium-term, perhaps because of a planned project in the next five years, for example. It may be that an investor is very risk-averse, and doesn’t want to expose their savings to the volatility of the market. Or cash might simply be one element in a balanced, diverse portfolio.
Of course, when interest rates are higher, as they are at the moment, then the returns on cash can be more attractive, if unlikely to match those available in the longer-term via investments such as stocks and shares. We have seen one year returns on cash of over 4% in recent months, which if nothing else is ahead of inflation.
Those holding cash often see it as a safe place for their savings, and this is largely true. The Financial Services Compensation Scheme (FSCS) is a statutory scheme designed to protect investors should authorised financial services firms fail, offering up to £85,000 protection per person within any one authorised firm.
However, those holding cash amounts in excess of £85,000 need to spread their cash across two or more institutions to ensure that they are fully protected by the FSCS, and for those with large cash holdings, this can be an onerous and complicated undertaking, involving opening multiple accounts (with all of the anti money laundering rigmarole that involves) and keeping tabs on each firm to ensure that interest payments have not taken the cash holding at any one firm beyond the £85,000 limit.
Fortunately, a new solution to that administrative nightmare is at hand. This new avenue is a partnership between banks, building societies and other financial firms, and offers a single platform through which the investor can manage their cash holding. This means that the investor only needs to go through the anti money laundering process once to gain access to all of the institutions on the platform.
Monitoring is then a simple process, as all of the different accounts are in one place, allowing the investor to see the interest rate being offered, the balance and the term. They can easily move cash between accounts, ensuring both that they are achieving the optimum return and also that they remain below the crucial £85,000 limit for each one, as well as depositing more cash or withdrawing it as their circumstances dictate.
Because this also simplifies the administration process for the banks, they may be able to offer better rates on the accounts accessed via the platform, balancing the small annual fee (0.25% of the balance maximum) charged to access the platform. A £50,000 minimum balance is required to access the cash hub; there is no maximum.
SIPP holders can also use the Cash hub to manage any cash element of their portfolio.
Lovewell Blake Financial Planning can help you with the initial set-up of a Cash Hub account, before handing it over to you to manage yourself.