Low interest rates might be great news for borrowers but they can have a devastating effect on savers’ long-term wealth. With inflation tending to run in excess of interest rates, the buying power of your money is being eroded, even though the value of your capital might appear safe. You need to keep a close eye on the interest you are earning.
Nowhere is this more apparent than with cash Individual Savings Accounts (ISAs). According to Moneyfacts, the average long-term fixed-rate cash ISA offered a rate of 2.41% in April 2013, compared with 3.58% in April 2012. However, rates of around 3% are available suggesting consumers are not taking the time to shop around.
It is good practice to retain some cash in an easy-access deposit account so you can cover unforeseen emergencies and short-term necessities. However, there is no reason to tie up all your cash holdings in this type of account. Research by Skipton Building Society, for example, found more than 75% of pensioners with an ISA never withdraw money from their account and interest rates can be significantly higher for those willing to sacrifice some flexibility.
Life is hectic and it is all too easy to forget about your ISAs until the end of the tax year is looming. Rather than waiting until the last minute, take the time to shop around now for the best possible home for your money.
Platiinum are always happy to help our clients.