Maximising cash savings: Are there alternative options to bank accounts?

In an environment where interest rates are being cut, the interest offered by traditional savings accounts is decreasing and inflation is trending back towards target. Now is a good time to make sure that cash and the best short-term investments for your requirements are working as hard as they can. 

Managing money across traditional savings accounts can, within protection limits, be safe but time-consuming. Evelyn Partners’ Cash & Cautious Bond (C&CB) Portfolio offers a competitive alternative while remaining focussed on high credit quality and liquidity. 

Portfolios can be constructed to balance near term cashflow needs, target-date or horizon preferences and extend maturities beyond the immediate-term - all within a disciplined framework that is mindful of interest rate, credit and liquidity risks.

In the UK, money saved in traditional savings accounts by individuals is generally considered safe and is protected by the Financial Services Compensation Scheme (FSCS) up to £85,000 per UK-regulated financial institution. This means that if a bank fails, then the FSCS is obligated to return any reserves up to £85,000 per person per bank. For anyone with more cash savings than this cap it’s wise to spread the money over multiple accounts so that this protection can apply if needed. 

However, managing multiple instant access, notice and fixed-term deposits across various banks can be daunting. This approach consumes considerable time and energy, while not always offering the highest return. 

Cash and bond portfolios have the potential to offer competitive returns, but they do come with a degree of investment risk so you might not get back the amount you put in.  It’s worth bearing in mind that other products such as National Savings & Investment (NS&I) bonds, where you can pay in up to £1 million, are also a secure option, as they are backed by HM Treasury. 

The Evelyn Partners C&CB Portfolio can allocate between cash, liquidity funds, UK T-Bills, UK government and SSA* fixed coupon sub-five year bonds to optimise client positioning by deconstructing each client’s unique liquidity, cashflow and liability/maturity horizon preferences.

(*SSA refers to Evelyn Partners preferred AAA rated (S&P) Supranational, Sub-sovereign and Agency issuers)

Evelyn Partners’ C&CB Portfolio is designed to address the challenges of spreading funds across numerous accounts and the inflexibility of fixed-rate arrangements whilst embracing the ability to broaden credit risk exposures, to bring peace of mind by mapping cashflow to known liquidity needs and/or by extending liquidity to take advantage of yields beyond the immediate horizon.

The C&CB Portfolio comprises a disciplined, actively managed, liquid and flexible selection of high-quality cash and bond investments. The only instruments allowed within C&CB Portfolio are cash, a preferred selection of liquidity funds, UK T-Bills and UK government & SSA bonds with both fixed coupons and a maximum maturity of five years. All investments are sterling denominated.

Here are some key aspects to note about the product:

• Diversification: By purchasing UK government bonds, we are in effect lending our client’s reserves to the UK government rather than another institution. This reduces counterparty risk, because lending to the UK government is generally more reliable as they are less likely to default than entities offering corporate bonds, for instance
• Traded daily, the price and value of short-dated Government bonds and short-dated SSA issues move based on interest rate expectations. This can have a large impact in the value of long dated bonds but is considerably more muted for short-term bonds, which is why C&CB portfolios may only include UK government or SSA bonds maturing within five years. Where a gilt is held until maturity, the return is fixed but where funds are required before this point there is a risk that you receive back less than originally invested
• Accessibility: Fixed term deposits can typically offer enhanced returns when compared to instant access accounts, however, they are not as accessible. If you want to access your money earlier, it is likely that you will be charged a penalty fee or lose out on earning higher interest. UK government bonds and SSA issues, meanwhile, are traded daily and can therefore be sold as and when required. While the range includes short and medium term options, we recommend funds to be held for at least six months, where the benefits can be realised in full

One of the strategies which can be employed within C&CB portfolios is the gilt ladder. This involves creating a portfolio of UK government bonds (gilts) with varying maturities to give a predictable and regular maturity/liquidity profile over time. 

Evelyn Partners’ C&CB portfolio aims to bring you competitive returns and significant time savings, making it worth considering. 

Evelyn Partners offers combined wealth management services with professional advisors and investment managers who can help you work towards your financial objectives. To explore ways to balance your portfolio and enhance your investment growth, please book an appointment or speak to your usual Evelyn Partners contact.