Cash management V. annuity

Posted by Akoni Hub
Posted on June 07, 2023 Leave a comment

With so many investment possibilities to choose from, deciding where to place your hard-earned cash to get the best return can be tricky. And, unfortunately, there’s no one-size-fits-all answer.  

How much money you have to invest, whether you’re looking for a short-term or long-term investment, and the level of accessibility and flexibility you require are all factors that will determine the type of investment that is best for you.  

For a long time, many investors (particularly those who err on the side of caution) have favoured annuity investments. But are annuities the best option, or are there alternative solutions, like cash management platforms, that offer stable investment and more profitable returns? 

What is an annuity? 

An annuity is an insurance contract which pays out invested funds as a regular income. Annuities are usually used for retirement as they provide a guaranteed and steady source of income (regardless of market conditions) paid out over a set number of years.  

You can buy an annuity using the funds you’ve already saved towards your pension. You can then decide whether you need a lifetime agreement (which will pay out until the end of your life) or a fixed term (which pays out for an agreed number of years).  

The income you get from an annuity is taxed as earnings. 

If someone who has saved £500,000 into their pension buys an annuity at age 66, they can expect a retirement income of £28,744 per year. However, someone with £1m in pension savings would expect to receive around £57,000 a year (Brewin Dolphin, 2023). 

What are the benefits and drawbacks of an annuity? 

The key benefit of an annuity is that your income is guaranteed regardless of what happens in financial markets. Therefore, Annuities come with little to no risk. 

Another appealing aspect of an annuity is that you will receive regular, scheduled payments. That way, you know when your money is coming, and you can easily budget. 

However, as with any financial investment, there are some drawbacks to consider when it comes to an annuity. 

The most notable drawback to choosing an annuity investment is that currently interest rates are low. While a considerable amount of risk is eliminated, Annuities prevent you from earning the high rates of interest other investments may offer. This is fine if you’re not looking for a high return, but it certainly limits your financial future. 

It’s difficult and sometimes impossible to get out of an annuity agreement. Most investment accounts allow you to withdraw or move your finances after a fixed period or, sometimes, whenever you choose. This is not the case for Annuities. So, once you’ve made your decision you must stick by it, even if a better option comes along. 

Your money may also be lost once you die. If you die within the term of your Fixed Agreement annuity or at any time during your Lifetime annuity, the remaining money in your plan will be lost unless you purchased a joint annuity. Joint annuities will pay a lump sum or continued income- payments to your beneficiary until the end of the fixed term or until they die. 

What is a cash management platform? 

Cash management platforms offer investors a more flexible and hassle-free way to hold, save, move and manage their money online to get the best returns possible. On one easy-to-use platform like Akoni, you can plan how to manage and hold your cash over time, move money from one Bank Partner’s deposit product to another and compare rates without having to fill out forms every time. 

On a platform like Akoni, you’ll be notified of new rates, can onboard easily online and deposit funds into a range of saving products from various banks. Not only does this give you some of the best returns available, but also allows you to use multiple banks and financial institutions at one time, therefore, spreading and lowering the risk. 

For example, with Akoni, an individual who deposits £1 million over two years can earn up to a 5.15% interest rate and expect interest earnings of £103,000 over 24 months. 

What are the benefits and drawbacks of cash management? 

Return on investment is a major benefit of cash management like Akoni. Having the option to move your finances when a better rate becomes available and without lengthy sign-up documents is a hassle-free way to maximise your savings returns.  

Flexibility is a considerable benefit of cash management. Unlike an annuity, cash management platforms allow you to move your money if you so choose. While it should be noted that some savings accounts operate on a fixed-term basis, this is usually only a maximum of a few years and, at the end of the fixed term, you can do as you please.  

With a cash management platform, your beneficiary will also keep the investment money in the instance you die before withdrawing your money, giving you the peace of mind that your family will be financially protected. 

However, there is a drawback when it comes to these types of cash savings platforms, and that’s interest rate risk. As a general rule, with most investments, the higher the interest paid, the greater the risk but with cash management platforms the risk here is that your savings could be tied up for a fixed term when interest rates rise, meaning you could lose out until you can move your savings into a higher rate account. However, easy access and notice products reduce this risk significantly and by being able to distribute your savings across a number of accounts with different rates and terms you can lessen any risk. Only you will know whether this is the right decision for you.  

The bottom line 

The bottom line is that there isn’t a one-size-fits-all answer to managing your cash for income purposes, and for some, annuity agreements are the best option for peace of mind. But for others, cash management is the most advantageous decision.  

However, what is clear from a financial perspective is that cash management platforms can offer great returns and opportunities as well as a greater level of flexibility and control over your finances.  

At Akoni, our single platform can help you easily manage your cash to get some of the best and most up-to-date rates around. Find out how we could help you maximise your investment here. 

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