Ray Dalio has changed his mind on cash.
The founder of Bridgewater Associates has been disparaging cash as an asset since early 2018. But with interest rates rising sharply, the billionaire investor has had a change of heart. Cash, he recently tweeted, now offers “neither a very good or very bad deal.”
“I no longer think cash is trash,” the investor said.
View original tweet.
Even if you think Dalio’s timing could have been better, his shift is a reminder to anyone in the UK holding cash right now that conditions have changed. In a low interest-rate world, it couldn’t compete with other financial assets. Then as inflation took off, it offered no protection. Now, rising interest rates are making cash much more appealing.
So if you’re sitting on cash and you haven’t checked on the highest-paying accounts recently, odds are that you could profit by doing so. The following rates are accurate at the time of writing, but are changing constantly,
Easy Access
First, look at what you’re getting now on your instant-access savings and shop around if it’s not good enough. You can get 2% from RCI Bank with unlimited withdrawals. Cambridge Building Society offers 2.1% but only one withdrawal a month; or if you go down to two withdrawals a year, you can get 2.5% on up to £5,000 with Yorkshire Building Society, then 2% on anything above that.
If you’re happy to give 30 days’ notice of withdrawals, and don’t mind opening an account by post (or in person, if you live locally), you could get 2.55% from the Penrith Building Society.
Lock In
Consider whether to lock your money away for a longer period. A year ago, there was no reason to do this (rates could realistically only go up). But today, it’s a trickier situation. Yes, inflation is still high in the UK and the Bank of England is expected to raise interest rates further this year. But market expectations as to how high rates will go next year are in flux. And meanwhile, upwards of 4% annual interest is available on fixed-rate accounts.
Whether that’s enough to tempt you to lock up your money depends on your situation. If you have cash to spare, you may want to keep it handy to invest, or possibly use it to pay off some of your mortgage.
It’s worth noting that you don’t get much benefit from locking up your money for too long. For example, you can get 4.2% for a year with Secure Trust Bank. But for three years, the current best buy is 4.75% from Nationwide. If you go out to five years, the best rate is around 4.5%.
Cash Isa
As rates rise, tax on savings interest is becoming relevant again. The “personal savings allowance” is £1,000 for a basic-rate taxpayer, and £500 for a 40% income tax payer (it’s £0 for those in the top 45% income tax band). Less than a year ago, the top-paying easy-access savings account offered just 0.65%. At that rate, a basic-rate taxpayer could have up to £150,000 cash in the bank, and a 40% taxpayer nearly £80,000, before they’d have to pay any tax on the interest income they made.
Now, assuming a rate of 2.35%, savings of £42,500 or £21,250 respectively would generate taxable levels of interest. And if you were to lock in your savings at 4.5%, the tax-free amount falls to £22,200 or £11,100.
Savings in a cash Isa (Individual Savings Account) are shielded from tax entirely. They have fallen out of favor in recent years because non-Isa accounts have frequently paid higher interest rates. But with rates now rising across the board, and tax becoming a potential issue as a result, those with substantial cash savings, and higher-rate taxpayers particularly, should be looking at them again.
The best rate on an easy-access cash Isa is 2.75% from Penrith Building Society. If you prefer an online account, Paragon Bank offers 1.9%, although you can’t make more than three withdrawals a year or else the rate drops. On the fixed-rate front, you can get 3.65% from Secure Trust Bank for a year or 4.25% from Virgin Money for three years.
Finally, if you have more than £85,000 in cash, don’t keep it all with one bank. That’s the amount the Financial Services Compensation Scheme guarantees to cover you for if a bank goes bust. This is highly unlikely, but as those who were around in 2008 will remember, if it does happen, it’s not much fun wondering whether or not your money is safe.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
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