Published on: September 25, 2020

I’m not sure if it’s just me, but this week has flown by.  And it certainly feels like the summer has ended and we have fallen into autumn with a splosh.  Anyhoo, settle back and immerse yourself in this week’s News, Views and Truths.

This week, the news out of Three Counties was the headwinds facing savers; predominantly those who hold cash deposits with the hope of longer-term returns.

We all know that interest rates have steadily fallen over recent years, driven by lower yields in fixed income markets, along with the lower lending rates dictated by central banks.  Yes, it is positive for those of us who have mortgages, but less so for those without and even worse for those who are dependent upon interest from savings in order to supplement their income.

An announcement this week by National Savings and Investments (NS&I) put this situation into stark contrast.  The government-backed depositary announced that, from November, they would be slashing their interest rates on both variable-rate and fixed-rate accounts; not even Premium Bonds have avoided the cull.

And when I say “slash”, I am not being emotive – I absolutely mean slash.

NS&I’s Income Bond, which has often topped ‘best buy’ tables in the past, is reducing its rate from 1.16% to just 0.01% AER, while the Direct Saver account will drop from 1% to 0.15% AER. Its Junior ISA will pay just 1.5% AER, down from 3.25%, while the Direct ISA will drop from 0.9% to 0.1% AER.

And again, it’s not just variable rate accounts.  NS&I’s one-year Guaranteed Growth Bond will drop from 1.1% to just 0.1% AER, while its one-year Guaranteed Income Bonds are being slashed from 1.06% to 0.06% AER.

So why is this happening?  The reality is, that this is the shape of things to come in terms of both retail banking saving rates and central bank rates globally.  The US Federal Reserve has confirmed their intention to keep rates lower for the coming years, with members’ expectations being that rates will not rise at all until the end of 2023.  And that is predicated on an economic recovery, with employment figures back to pre-Covid levels.

Be prepared to see retail banks follow suit.

And yet, believe it or not, that is not the biggest problem facing savers.  Yep, it gets worse.

Along with announcing their intentions regarding interest rates, the Fed announced their changing stance with regards to inflation which will allow the rate to rise above the headline 2% for an extended period of time.  That, ladies and gentlemen, is the biggest problem if you hold cash on deposit that you do not have a defined plan for.

And this is no longer speculation; this is confirmed.  You are in the middle of the perfect storm of low-interest rates and rising inflation.

So what can you do?  Well first off, if you haven’t already, watch the recording of our latest webinar on this very subject HERE.

I flesh out the economic conditions I’ve detailed above, whilst outlining a potential solution for those who simply wish to protect their capital against the eroding effects of inflation over the longer term.  Most importantly, my colleague and Co-Director, Corryn Wild, runs through the financial planning points that you must consider before taking any action.

This week’s “When Andrew Met…” video is on the website here, a catch up with Richard Watts, manager of the Merian UK Mid Cap fund.  Richard updates me on the performance of the fund and the challenges to the sector as lockdown restrictions increase across the country.

Once again, my weekly podcast is also live here, with this week’s guest being Rob Powell, Head of Thematic and Sector Product Strategy at Blackrock.  We talk about thematic investing and in particular, the opportunities that arise from an aging global population.

That is it for another week.  Stay safe, download the app and I shall see you all next week.

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