The impact of rising interest rates and staying relevant

Posted by Akoni Hub
Posted on October 30, 2023 Leave a comment

Since inflation rates hit 11.1% in October 2022 (a 41-year high), interest rates have been gradually increasing to tackle  inflation to try to meet the government’s target of 2% by the end of 2023.  

Currently, the Bank of England (BOE) interest rate is 5.25% (BOE, September 2023), which is the highest it has been in 15 years. The rate is also predicted to rise further, up to about 5.75%, by the end of the year (The Telegraph, July 2023). This would make interest rates the highest they’ve been since 2007.  

It is expected that interest rates will peak at around 5.8% in the spring of 2024 and subsequently decrease to about 4% by the end of the year (Berenberg Bank, July 2023). 

With such steep inflation rates, investments currently sit in a volatile position. As a result, 89% of advisors have made big changes to their client’s financial plans in the last year (Schroders, 2022).  

One of the biggest shifts financial advisors have witnessed since inflation and interest rates began to rise is the flight to cash. Last October, cash levels on Transact were at 6.5% compared with 5.3% in October 2021, while Abrdn saw cash holdings on its platforms rise 35% from the end of 2021 to October 2022.  

The reason behind this shift is simple; cash investments are one of the only types of investments actively benefiting from the stark inflation and interest rates the UK is currently seeing.  

So, how can you stay relevant and maximise your client’s returns as cash rates rise? 

How have rising interest rates impacted investors? 

One of the most significant ways rising interest rates impact investors is via the stock market.  

As interest rates rise, the country’s economic growth slows. Therefore, two things happen; companies’ future financial earnings are compromised, and stock investors become reluctant to bid up stock prices due to an uncertain future.  

Additionally, rising inflation rates mean that pound for pound, your money doesn’t stretch as far as it did before. Therefore, investors actually have less money to invest because they have to pay more for their general living costs.  

As a result, individual investors and financial advisors have been left in limbo, unsure of what move to make next.  

That’s where cash savings come in. 

How can financial advisors get ahead of the game with cash savings? 

While the stocks and shares market remains volatile for the foreseeable future, cash savings can help you and your clients make secure investments that offer great returns.  

Many challenger banks are offering some of the best rates on the market as they compete with one another to attract new customers.   

Building societies are also a good place to look, as they often announce savings-rate hikes within hours of a base rate hike.   

As it stands, there are some cash savings accounts offering as much as 6% interest for individual and business accounts on just a one-year term. 

You can also find instant access cash savings accounts offering interest rates of 5% (figures as of September 2023). 

Where can I find the best rates? 

The truth of it is that no one bank consistently offers the best rates – these rates change over time, which leaves many people opening and closing multiple accounts to chase the best rates. Unfortunately, this is one of the drawbacks of cash investments.   

However, there is a solution to this issue; cash management platforms that allow you to move money between accounts without the hassle (for example, lengthy sign-up forms).   

Can you use cash management platforms for Trustee accounts? 

After more than a decade of painfully low interest rates, Trustee accounts can now collect interest like any other deposit account.

And, cash management solutions like Akoni have allowed banks to access this marketplace, provide easily accessible services and offer complete visibility over your trustee accounts and savings portfolios in one easy-to-view dashboard. 

An insight into cash management platforms 

Cash management platforms offer investors a flexible and hassle-free way to hold, save, move and manage their client’s money online, getting the best returns possible in the current financial environment.  

On a cash management platform like Akoni Hub, you can not only plan how you manage and hold cash over months and years, but you can also compare rates in real time and move money from one account to another without the hassle of opening and closing accounts usually comes from.  

You can also open more than one savings account, meaning not only can you access the best returns on the market, but also you can spread and lower investment risks.   

Akoni Hub will also send email and in-platform notifications when new rates become available, helping you keep track of where you can find the best returns. That way, you never miss out on the best rates for your clients. 

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