Rise in interest rates: why cash is not king

Portafina’s Managing Director comments on the recent interest rate rise

Interest Rates

On Thursday 2nd August the Bank of England raised interest rates to 0.75%, the highest level since 2009.

Portafina Managing Director, Jamie Smith-Thompson, talks about what this could mean for people heading towards retirement.

“The assumption is that banks and other financial institutions will pass on any rise in interest rates to clients who have savings in cash. This could be a standard savings account. A cash ISA. Or even the cash element of a pension. The reality is usually very different.

“Any increases that are passed on for people with cash savings generally range from negligible to zero. In fact, banks and financial institutions often see cash savings as a bit of a profit centre. And cash has even been referred to as muppet money. This type of attitude and approach is frankly out of order.

“Take someone who is heading into retirement. While any interest rate rise is unlikely to boost their savings by much, it will hit them in the pocket when it comes to debt. And recent figures show that at least one in five people are retiring with debt. On top of this, rises in interest rates are usually implemented to reduce inflation and this is bad news for the state pension because of the way the triple lock works.

“What is painted as a potentially good thing can often be a negative triple whammy for people who have a lot of their savings in cash and are approaching retirement. The sensible thing to do is make sure that as much of your money is appropriately invested in markets as possible.”

Jamie Smith-Thompson, Managing Director

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