While falling interest rates typically lead savers to reassess their cash holdings, inflation remains a persistent concern – with Bank Governor Andrew Bailey stating that more evidence of inflation being tamed is needed before cutting rates further. So, what does this all mean for cash?
Savers need to act fast
With experts predict that rates could be cut again, savings professionals are advising clients to be proactive.
Research conducted by Flagstone reveals that, despite the current uncertainty, there are favourable rates out there and cash investors able to navigate the various products on the market could find themselves in the ‘sweet spot’, with inflation at 2.2% and interest rates for savings accounts still offering rates of up to 5%.
In fact, Flagstone research found that 60% of savings professionals recommend securing longer-term rates now, ahead of further potential rate cuts.
Balancing flexibility and returns in uncertain times
Of course, future rate cuts are not guaranteed, but by adopting a strategy that combines longer-term savings products with short-term flexibility, savers can protect themselves against future rate volatility while maximising the returns on their cash.
"In a market where rates are softening, it pays to do your homework and diversify your savings. Savers who maintain multiple savings accounts with portions of their cash maturing regularly stand to benefit the most,” comments Simon Merchant, co-founder and CEO of Flagstone.
“These savers recognise the value of diversifying by term length, ensuring reliable liquidity, strong returns, and the ability to take advantage of the relentless competition among banks to top the best-buy tables.”
Merchant’s view is reflected in Flagstone’s findings – with a third of respondents suggesting diversifying savings across different term lengths to maintain flexibility and optimise returns. Another third (33%) recommended spreading cash across accounts with varying term lengths to maintain flexibility while taking advantage of the best offers available.
Saving is a high-performing asset class that anyone can access. The more good savings habits people adopt, the harder they can make their spare cash work for them
Opportunities ahead for cash investors
Flagstone’s research highlights the importance of acting now. For savers who can lock in rates for 12 months or longer, there is still potential to secure solid returns that exceed inflation. What’s more, by adopting a strategy that combines longer-term savings products with short-term flexibility, savers can protect themselves against future rate volatility.
The decision to drop rates to 4.5% is just the latest chapter in the Bank of England's approach to managing inflation. With rates potentially falling in the coming months, the challenge for cash investors is to navigate these changes, along with the different products available. Once again, proactivity is key.
As Merchant notes, "Saving is a high-performing asset class that anyone can access. The more good savings habits people adopt, the harder they can make their spare cash work for them."
