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Applewood Independent

Leading independent financial adviser for South Cheshire and Staffordshire

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How are your deposits working for you?

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One concern to our clients that we see regularly and from new prospects is the fact that everybody's deposits aren't doing very well. When we talk about deposits, we mean current accounts and savings accounts, we also count cash ISA's in that as they have no link to the stock market. We feel that these are of particular concern due to the lowering base rate of the banks which has been happening of late and also the rise in inflation, which we believe will continue to rise.

This is of particular concern for your deposits, whilst cash is still returning positive returns - if you look at it versus inflation, the comparison is very poor. The best rate on a current account with no monthly fee and with easy access is 1.01% per annum although most people probably have a current account with 0.5% per annum or less in their possession. Inflation is currently 2.6% (RPI to Jan'17), so currently you could lose money in real terms against cost of goods and services.

We do believe that whilst everyone should adhere to a proper emergency fund for rainy day monies, those with spare monies in deposits should consider something with a bit more risk i.e. the stock market - to aim to achieve returns that are above inflation (though there is strong consideration in every circumstance you should go to speak to your financial adviser first.) It is very important that your money at least returns inflation and if it doesn't, you are losing out in real terms. Whether your money is what you deem to be safe or not in the bank account, losing money in the real returns is a loss if the bank accounts don't pick up at least inflation, which we honestly can't see for some time going forward.

The alternative is obviously money going into other assets, we still believe the stock market to be about as good as it gets when it comes to potential investment returns. The comparison to the FTSE 100 shows £10,000 over 10 years in an average deposit fund would have returned £10,440, the FTSE 100 would have taken £10,000 over 10 years to £16,570. So the immediate comparison with the stock market, draws a very poor comparison for cash again.

When you add in portfolios such as our Income 6 which over the last 10 years would have turned £10,000 into £19,920, and our Growth 6 which would have given £22,180 - both of which were deemed to have around half the risk of the FTSE 100, our diversified portfolios start to look incredibly attractive. In fact, on the figures that we have quoted, if we were to perform a half of what we have done in the last 10 years, you would have easily beaten inflation over that period. So there is the scope for the risk that is taken, which is still half the risk of the stock market, to be worth taking with everything considered. If you are after a regular income, our naturally produced yield is about 4% PA net of tax (in most circumstances), with our figures from the last 10 years showing that we have given 4% income as well as a good level of capital growth.

Again, it is worth reiterating that any considerations of money into the stock market have to be on an individual consideration having looked at your circumstances and with the appropriate amount of emergency fund left. Different risk factors can raise or lower the expectations and nothing is guaranteed.

I am always available to have a chat to anybody if they are interested in the stock market versus cash, whether it be an existing client or a new prospect. We believe the stock market to be extremely attractive at this moment in time for its potential for growth and also for income, so do not hesitate to get in touch with me to discuss.

Past performance is not a guide to future performance. The value of investments and income derived from them may go down as well as up. Investors may not get back the full amount of their investment and are not certain to make a profit, they may make a loss. Investments do not include the smae security of capital which is afforded with a deposit account.

Alex Pritchard Dip PFS MDRT, Director / Financial Adviser