How a reduced base-rate calls for a change on your Saving Strategy
As a general rule, households and individuals nationwide are happy to build their wealth in standard bonds and instant saver accounts. The validity of this strategy has been called into question recently, however, particularly after the Bank of England (BoE) slashed interest rates and diminished the return that savers could expect on their investment.
The impact of this measure has been swift and damaging in equal measure, with the base rate now fixed at just 0.25%. In the week that followed the BOE’s announcement, a total of 18 banks and building societies reduced their own rates accordingly, while others withdrew their premium savings accounts with the highest yields.
Why there is a pressing need to change your saving strategy
Forward-thinking savers will have been primed for this development, however, having seen the British economy wilt under the looming spectre of Brexit and a number of the best savings deals withdrawn during the last month. Still, the speed at which providers have slashed savings rates has come as a surprise, forcing many to reconsider their approach to building wealth in the current climate.
Given that this is the first base rate cut since the depths of the great recession back in 2009, however, altering your financial strategy is far easier said than done. It is clear that committing savings to standard saver accounts is no longer a viable option for those who are serious about optimising their earnings, with the difference between the highest and lowest yield accounts becoming increasingly negligible. The top, instant access savers are now paying an average of 1.45%, for example, with the lowest delivering a paltry 0.05%.
How to Change your Saving Strategy
In terms of adapting your strategy, there are a couple of areas to focus on. The first is private pension planning and flexible products such as SIPPs (self-invested personal pension plans), which incorporate a wider range of high-yield investment options and drive significant tax benefits. This option also offers considerable flexibility in the current climate, which may make the difference between building wealth and simply treading water.
The second option is a managed investment portfolio, through which you can invest in various assets and products depending on your appetite for risk. These are managed by an expert third-party firm, and while they are not guaranteed to drive returns, higher-risk accounts can deliver yields in excess of 11%.
These types of investment vehicles are certainly worth consideration in the current climate, particularly at a time when savings rates are low and continually falling.
