April 5, 2012
-- With inflation currently running far in excess of base rates, even though the value of your capital may be safe, the buying power of your money is being eroded. Therefore, you need to keep a close eye on the interest rates you are earning.
Nowhere is this more apparent than with Cash ISAs. In a survey for watchdog Consumer Focus, the average interest received on cash Isas was less than 0.5% a year. With rates of 3% to 4% available, it suggests consumers are not shopping around.
It is good practice to retain some cash in an easy-access, readily available deposit account to make sure you can cover unforeseen emergencies and short-term needs. However, there is no reason to tie up all your cash holdings in this type of account. The Consumer Focus research found around 60% of cash Isa holders never withdraw money from their account. Interest rates can be significantly higher for those willing to sacrifice some flexibility.
“Putting a reminder in your calendar now to shop around for a better cash-ISA rate in a year’s time is essential if you want a half-decent return,” suggests Consumer Focus. “Unless you check your rates each year you are likely to end up with a poor return on your savings.”
Paul Dixon FPFS
Chartered Financial Planner
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Census Financial Planning is an independent financial planning practice providing a professional and comprehensive financial planning service, located on the Lisburn Road in Belfast, Northern Ireland.