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Contact us | www.future-financial.co.uk | E-mail your comments | Archive | |
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Money under the mattress? Consumers may have lost faith in banks and are instead hoarding cash, if the increase in high- denomination bank notes in circulation is anything to go by.
There may be many reasons for people using cash more than previously, not least of which could be a desire not to pile too much debt on their credit cards, to avoid high interest rates which are much higher than those for mortgages. Of course mortgages and credit cards are totally different. But according to Credit Action the average household owed £9,000 on non-mortgage debt at the end of last year. This represents about one pound in six of overall household debt, so there is a significant amount on which higher interest is being paid. Is there anything wrong with banks? If the reason for keeping cash rather than leaving money in the bank is a fear of possible failures within the banking system, it is important to remember that the Financial Services Compensation Scheme provides a high level of protection; £50,000 per individual per authorised banking institution. So a couple with up to £100,000 on deposit with one bank will be fully protected although it is not clear how quickly the FSCS could actually pay out in the event of a bank default. The limit applies per banking institution, based on its regulatory relationship with the Financial Services Authority. If two banks within the same group share a single FSA registration number, then the deposits held with them will be aggregated for the purpose of the compensation limit. If, however, they have separate registration numbers, this should not occur. Investments and home finance advice are also protected up to £50,000, although not against normal market fluctuations, of course. Life insurance is protected up to 90% of any loss sustained (as is home insurance, for example). Are we really saving less? According to the Banking Times, we are as a nation actually saving more than a few years ago – 8.6% towards the end of last year, as against nothing at the start of 2008. But there is still some way to go to beat the 12% peak seen in 1992. This almost always happens in a recession because, as we become more nervous about future prospects, we tend to save more. This can actually be bad for the economy, as less spending tends to reduce Gross Domestic Product (GDP) but in the current case, this does not appear to have been a problem (at least so far). If you do decide to ‘stash your cash’ ... Please remember household insurance is most unlikely to provide anything like enough protection for cash; in the event of a fire or theft, you could lose far more than you expect! And don’t forget, despite the historically low bank rate, there are some good deals on the market, although many of these can carry restrictions and penalties if you need to get at your money before the end of a fixed period of time. |
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©futurefinancial This publication represents our understanding of law and Inland Revenue practice as at the date of publication. It does not provide individual tailored investment advice and is for guidance only. Rules may vary for Scotland and Northern Ireland. We cannot assume legal liability for any errors or omissions it might contain. Levels and bases of, and reliefs from taxation are those currently applying or proposed and are subject to change; their value depends on the individual circumstances of the investor. The value of land and buildings is generally a matter of a valuer’s opinion rather than fact. The value of investments can go down as well as up and you may not get back the full amount you invested. The past is not a guide to future performance and past performance may not necessarily be repeated. If you withdraw from an investment in the early years, you may not get the full amount you invested. Changes in the rates of exchange may have an adverse effect on the value or price of an investment in sterling terms if it is denominated in a foreign currency. Your home may be repossessed if you do not keep up repayments on your mortgage. Loans are subject to status and written details are available on request. Always seek independent advice from a qualified financial adviser. Think carefully before securing other debts against your home. Fees for mortgage advice maybe charged and for details of these please contact us. The Financial Services Authority does not regulate all the activities undertaken by the company, including taxation advice and overseas mortgages. |
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