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The golden rule of investing that savers can learn from

We explore how savvy savers are getting a better return on their cash by building a savings portfolio through Active Savings.

Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

Saving and investing are two different beasts, but there’s a golden rule that investing can teach savers when it comes to their cash.

And that’s diversification.

Choosing the right rate for your savings is only half the battle when it comes to protecting your hard-earned cash from inflation. With inflation projected to hit a staggering 5% in April 2022, interest rates, regardless of rumoured rises, aren’t going to beat it.

But making sure your cash is working as hard as it can isn’t as difficult as it seems.

This article isn’t personal advice. If you’re not sure how best to plan your finances, take advice.

Understanding the risks to your cash savings

Holding cash is inherently less risky than investing, but that doesn’t mean there’s no risk at all.

Inflation is the biggest risk to your cash savings – it reduces the buying power of your money. So if inflation is higher than the interest you receive, it means your cash is losing value over time.

Beating inflation with your savings rate is rare, that’s why people invest. But having cash is still crucial. So it’s important you put your money to work to try and reduce the impact of inflation.

There’s also the risk of rising and falling interest rates if you haven’t locked your money away with a fixed rate.

Savers who opt for convenience and save cash with their main bank or building society, are getting bottom of the barrel interest rates – the national average rate is a measly 0.06%. 

But some banks are getting away with paying as little as 0.01% for instant access.

With rates that low, it’s hard to understand why savers would opt for convenience over better returns regardless.

How much cash should I hold?

There’s also the possibility that banking institutions fail – known as default risk. The 2008 banking crisis was a shock to the system, and it spurred the industry to make changes to how individuals’ money was protected.

The Financial Services Compensation Scheme (FSCS) was set up to protect consumers against default. There’s now an £85,000 limit if the institution goes into default. The level of protection technically also poses a risk to anyone who has more than that per banking license.  

Even if you had multiple ‘accounts’ with the one institution, your eligible deposits are only covered up to that amount per banking license.

Although the FSCS gives a degree of safety, it doesn’t completely get rid of the risks that come with keeping everything in one place – much like when you invest.

With some risk applied to something seemingly ‘safe’, it begs the question – is there a better way to save?

A savings portfolio could be the answer

Applying the same principles of investing to your cash savings to temper risk shouldn’t be unfamiliar territory.

But as a first priority, make sure you build your cash savings for emergencies in an easily accessible account. We usually suggest having three to six months of expenditure in cash if you’re earning an income. If you aren’t working, we think you should hold more like one to three years’ worth.

Moving away from keeping all of your cash savings with your bank or building society should be your second priority – especially if you’re a higher earner or are expecting an inheritance or windfall.

But ignorance isn’t bliss when it comes to the rest of your cash savings.

By building a portfolio of savings around when you think you need your cash, you could shelter it from some risk by having a mixture of easy access and fixed-term products.

For instance, you can help reduce interest and inflation risk by mixing and matching across fixed terms. You could get better rates with a variety of fixed-term accounts, that won’t pay out until the term ends. This gives you the opportunity to help reduce the impact of inflation.

You’d have the choice of how long to fix your savings for – whether it’s six months, five years or somewhere in between. As well as the flexibility to plan your savings around when you might need access to your money if you’re saving in a fixed term.

See what a savings portfolio could look like 

Next, think about reducing default risk.

Although it’s probably unlikely we’ll see a repeat of the 2008 financial crisis in the next five years, there’s no guarantee. So making sure your money is protected is important.

By spreading your savings across different banks and building societies, you’d benefit from the FSCS limit per institution, for all eligible deposits.

How safe are my savings?

Building a savings portfolio with Active Savings

Building a portfolio is easy with Active Savings.

You can manage everything via your HL account – you get to see all your savings and investments together. You also don’t have to shop around for competitive market rates as they’re all in one place.

Once you’ve opened your Active Savings account, or logged in, you can look for the right mix of rates and terms that fit your goals and needs.

Whether they’re short or medium term is up to you, you’ve got the flexibility to pick and mix around providers, rates, and terms. You won’t always get that with big high street banks.

Plus, when you open an account with Active Savings between 11 November and 9 December and deposit at least £10,000 within 60 days, you can get cashback of between £10 and £100. If the overall balance of your Active Savings account drops below the qualifying amount, we may reclaim your cashback. Terms apply, see below for details.

Cashback

Get £10-£100 cashback

Open an Active Savings account by 9 December, then add at least £10,000 by debit card and choose your savings product within 60 days to qualify for cashback. If your balance drops below your cash offer qualifying amount within 6 months we ay reclaim your cashback. Terms apply.

You save Your cashback
£10,000 - £19,999 £10
£20,000 - £29,999 £20
£30,000 - £49,999 £30
£50,000 - £79,999 £50
£80,000 or more £100

More on building a savings portfolio 

The Active Savings service is provided by Hargreaves Lansdown Savings Limited (company number 8355960). Hargreaves Lansdown Savings Limited is authorised and regulated by the Financial Conduct Authority (firm reference number 915119). Hargreaves Lansdown Savings Limited is authorised by the Financial Conduct Authority under the Electronic Money Regulations 2011 with firm reference 901007 for the issuing of electronic money.

Active Savings cash back offer terms – what you need to know

1. This offer is available to anyone who opens a new Active Savings account between 11 November 2021 and 9 December 2021 inclusive (“the Offer Period”).

2. To qualify for the offer, you’ll need to fund your new account, with at least £10,000 by debit card, and to subsequently use this money to instruct us to add at least £10,000 to one or more savings products within that account. Both of these actions must be taken within 60 days of the opening of the account to qualify (“the Qualifying Period”). For the avoidance of doubt you can open an account with as little as £1 and still qualify for the offer, provided that your account is topped up to a balance of at least £10,000 and you use this money to instruct us to add at least £10,000 to one or more savings products. Both of these actions must be taken within 60 days of opening the account in order to qualify.

3. If you open an account within the Offer Period and also satisfy the criteria listed in clause 2, we will credit the cash hub in your account with a cash amount between £10 and £100, depending on the amount you add to one or more savings products. We will credit the cash amount within one month after your Qualifying Period. We’ll notify you by email once the cash amount has been added.

4. The value of the cash reward will be based on the total amount added to savings products within 60 days of the opening of the account. The value of the cash reward will also only be based on the amount added to your account by debit card during the Qualifying Period. The value of the cash reward will not be based upon any amounts added to savings products using cash held in a Fund and Share account.

5. The cash reward shall be determined in accordance with the tiers identified in the table accompanying these terms and conditions.

6. It is not possible to combine the value of saving products chosen in accounts with different client numbers for the purpose of this offer. The maximum amount of cash you can receive under this offer is £100.

7. We reserve the right to reclaim the cash reward if the overall balance of your Active Savings Account drops below your cash offer qualifying amount within 6 months of the date of the qualifying deposit. We will notify you if we intend to reclaim the cash reward, and will claim it within 7 working days.

8. We reserve the right to amend, extend or withdraw this offer if necessary, including for legal or regulatory reasons or otherwise. If the offer closes early, all qualifying applications received up until this time will still be accepted. Details of any such amendment, extension or withdrawal will be posted on our website at www.hl.co.uk/savings.

9. This offer is not available to anyone who already has an Active Savings account.

10. You must not be an employee of any Hargreaves Lansdown Group company or a member of any such employee’s immediate family or household.

11. This offer is limited to one payment of up to £100 per client.

12. This offer will be governed by English law and, in participating, you submit to the jurisdiction of the English courts.

13. References in these terms and conditions to “Hargreaves Lansdown”, “our”, “us” or “we” are to Hargreaves Lansdown Savings Limited (company number 08355960), authorised and regulated by the Financial Conduct Authority (FCA Register number 915119), whose registered office is at 1 College Square South, Anchor Road, Bristol, BS1 5HL. References to the “Hargreaves Lansdown Group” are to Hargreaves Lansdown plc (company number 02122142) and its subsidiaries from time to time.



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Important notes

This article isn’t personal advice. If you’re not sure whether an investment is right for you please seek advice. If you choose to invest the value of your investment will rise and fall, so you could get back less than you put in.

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