by Cleona Kinahan M.Sc CFP® QFA FLIA
Many of us were brought up to believe Cash is King! that the best way to save money was in your deposit account. Some of you might even be old enough to remember the bank account book that was manually updated when you made a lodgement or withdrawal. Oh, how times have changed…. We are now experiencing and living with negative interest rates. The European Central Banks introduced the notion of negative interest rates in 2014 (-0.1%) to help stimulate the economy and get people out spending. With negative interest rates, the bank is charging us a storage fee to look after our money rather than the opportunity to earn interest. The idea is to incentivise people to spend rather than save or hoard.
So, if negative interest rates have been around for the last 6 years why is the spotlight now on Pension Funds and Cash?
For the last number of year’s most financial institutions absorbed negative rates and just passed on lower deposit rates to customers on their savings. Although large institutional and corporate clients have suffered the ‘storage’ charge for a few years the big headline now is that large corporate Pension Trustee & Investment firms, which may have millions in cash reserves will be hit with a charge for holding large cash balances.
The quandary for most people today is to try and balance the need for liquidity (access to money in a hurry) and the actual costs of holding too much cash. As mentioned above, personal interest rates are abysmal, and I haven’t even mentioned the impact of inflation on your money – how as the years pass, your cash balance will buy less ‘stuff’ as the price of stuff rises.
So, the big question is, what can you do to make sure your money is working as hard as you are?