22 February 2023

Squeezing more from cash

With the cost of living crisis in full swing during the dark wintery months and rocketing interest rates, many are rethinking their finances. Whilst mainstream news channels share tips on curbing food and energy bills, consumer groups are waving the flag for the latest cash deposit deals.

It seems they have a point. Though higher interest rates have added unwelcome pressure to already cash-strapped borrowers, those with money to save have more reason for cheer.

Current Accounts

Whilst some banks try to lure new savers with £200 switching bonuses, others are offering cashback on monthly bills or up to 5% interest on regular savings.

The downside is normally in the small print, for example interest will only be earned on smaller balances and bonuses withdrawn within 12 months.


Those with significant sums have more choice and opportunity. Deposit rates change like the weather but currently some instant access accounts earn interest of 3% a year or 4%+ for those who can afford to lock away their cash for at least twelve months.

The best deals are typically offered by ‘challenger’ banks which don’t have the same deep pockets as the familiar high street names, so prudent savers will often limit their deposit to the £85,000 maximum protected under the Financial Services Compensation Scheme (FSCS).

Savers with even larger deposits can benefit from cash management services, which do the legwork of switching between accounts systematically when bonus deals end and can ensure full FSCS protection by splitting across institutions where necessary. Providers will typically charge fixed fees or deduct a few basis points from the interest for their efforts so there is normally a trade-off between convenience vs. a slightly higher return for those with the time and patience to run multiple accounts.

Global Bond Investments

Stock market investments are much less predictable, at least in the near-term. 2022 was an oddity where both global equities1 and bonds2 finished the year negative for the first time since 1994. Global Bond investors, who typically have less appetite for risk, will likely have seen the worst volatility experienced in living memory.

Surging global interest rates are again at play, especially central bank policy over the pond given that the US makes up around half of the global bond market. In January 2022 bond markets expected the Fed’s upper limit interest rate to reach a maximum of 1% in 2022, it finished the year at 4.5%

However, higher rates also bring new possibilities. The average yield (broadly, the expected return on bonds, assuming constant interest rates) within the Bloomberg Global Aggregate Bond Index is much improved compared to even a year ago, as shown in the following chart:

Chart 1


Higher interest rates bring challenges but also new opportunities. Borrowing is more expensive but more appealing offers are available to savers and bonds seem more attractive.

For anyone interested to understand how this new environment affects their own situation, please contact your usual Carbon financial planner or please get in touch for an initial free-of-charge conversation.

1MSCI World Equity Index

2Bloomberg Global Aggregate Bond Index

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

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